Explain the issues involved with the Fed acting as a lender of Last Resort (LLR)
What will be an ideal response?
On the one hand, LLR enables the Fed to avoid panic and disturbance to proper functioning of financial markets. On the other hand, using the policy may cause problems of moral hazard.
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Jacob pays $5,000 to paint his house because pollution from a nearby factory damaged the paint. To the factory, the $5,000 cost is
A) a private cost and not an external cost. B) an external cost and not a private cost. C) both a private cost and an external cost. D) neither a private cost nor an external cost. E) a private benefit because viewers will benefit from watching the extra hour of the show.
The height of the market demand curve
a. at any quantity shows the value — to someone — of the last unit of the good consumed b. shows the market value of a good or service c. increases as more of a good or service is consumed d. shows the cost of producing each unit of a good or service e. measures the side payment necessary to achieve economic efficiency
Aggregate supply (AS) refers to:
a. the total quantity of inputs that firms will request and purchase. b. the total quantity of output that firms will produce and sell. c. the smallest quantity of output that firms will produce and destroy. d. the total quantity of inputs that firms will request and waste.
What is the general format of the consumption function? Explain what each term means and use the consumption function to explain the three different ways that consumption can increase