Discuss why the interest-rate transmission mechanism of monetary policy isn't as strong as most people may think it might be.
What will be an ideal response?
Investment spending does not seem to be that sensitive to interest rates. The information problems often make external financing difficult and costly for firms to undertake so the majority of investments are financed by the businesses themselves using their own funds. So, while a change in interest rates does change the cost of external financing, it does not have that great of an impact on investment itself.
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The level of reserves in the banking system is determined by
A) the Federal Open Market Committee. B) the Treasury Department. C) bond dealers. D) the American Banking Association.
The fee that insurance companies collect in exchange for covering unpredictable costs is called a:
A. prepaid event charge. B. preventative payment. C. premium. D. ultimatum.
People will buy more of an inferior good when their income decreases.
Answer the following statement true (T) or false (F)
The most important function of money is when money is used as a
A. medium of exchange. B. standard of deferred payment. C. store of value. D. unit of accounting.