How do open market operations work?
What will be an ideal response?
If the FOMC decides to increase the money supply, it will direct the trading desk at the Federal Reserve Bank of New York to buy U.S. Treasury Securities from the public. When the sellers of these securities deposit the funds from the sale into their banks, the reserves of the banking system will rise. This will start the process of expanding the money supply as the increase in reserves expands loans and checking account deposits. If the FOMC wants to reduce the money supply, it will direct the trading desk to sell U.S. Treasury securities. This will decrease reserves, contract loans, contract checking accounts and shrink the money supply.
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Increases in the price level
A) decrease the opportunity cost of holding money. B) increase the quantity of money needed for buying and selling. C) increase the opportunity cost of holding money. D) decrease the quantity of money needed for buying and selling.
Natural monopolies include
A. cell phone companies. B. colleges and universities. C. fast-food outlets. D. the local water company.
Mika's Manicures leases a space in the local mall for $4,500 a month. For this business, this expense would be considered an:
A. explicit cost of $0. B. explicit cost of $4,500. C. implicit cost of $4,500. D. This is neither an implicit or explicit cost; it is a fixed cost of $4,500.
For this question, assume that taxes are independent of income (i.e., the income tax rate is zero). Now suppose that fiscal policy makers wish to decrease equilibrium output by $500 billion. Further suppose that policy makers can choose one of the following two options: (1 ) change in government spending; or (2 ) change in taxes. Compare and explain the relative size of the changes in government
spending and taxes needed to obtain this desired change in output. What will be an ideal response?