The name balance-sheet channel of monetary policy implies that monetary policy has to impact categories on a firm's balance sheet. Explain how the balance sheet of a firm will be impacted by an increase in interest rates.
What will be an ideal response?
An increase in interest rates will lower the value of the firm's assets. If nothing else were to change, the firm's net worth would decrease, since net worth is assets less liabilities. But there are likely to be other changes. If the firm has any interest-sensitive liabilities, the increase in interest rates will increase the interest expense for the firm, which will reduce profits. The reduction in profits will reduce net worth since profits increase the owner's net worth.
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Quantitative easing is a central bank policy that attempts to stimulate the economy by possibly
A) selling treasury securities. B) making discount loans to nonfinancial corporations. C) slowly reducing the required reserve ratio. D) buying long-term securities.
If unions were formed in more industries, the supply of labor in other industries would
a. increase, causing employment in other industries to rise. b. increase, causing employment in other industries to fall. c. decrease, causing employment in other industries to rise. d. decrease, causing employment in other industries to fall.
Which of the following is an example of foreign direct investment in China?
A) Chinese Shenzen Airlines company buys a small U.S. midwest airline company, Air Chicago. B) The bank of China purchases U.S. Treasury bonds. C) A U.S. foreign exchange speculator buys $200,000 worth of the Chinese currency the yuan. D) The U.S. company Walmart buys a warehouse in Shanghai. E) U.S. auto entrepreneur Elon Musk buys stock in Alibaba Group Holding Limited of Hangzhou, China.
Deadweight loss is the decrease in ________ from producing an inefficient amount of a product
A) only consumer surplus B) only producer surplus C) consumer surplus and producer surplus D) profit