Forwards, swaps, futures, and options are examples of:
a. spot market transactions.
b. transaction costs.
c. market frictions.
d. derivatives.
Ans: d. derivatives.
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When the Fed sells $100 million of securities to a commercial bank, the
A) monetary base increases. B) money supply increases. C) bank's reserves decrease. D) required reserve ratio decreases. E) bank's reserves do not change.
The government played a central role in directing the post-World War II economy, causing all of the following to occur except
(a) The reduction of entitlements, such as Social Security and unemployment benefits. (b) Massive spending by the federal government, justified by the Cold War. (c) Enormously expanded government infrastructure spending on things like highways, airports, education and research and development. (d) There is no "except"; all of the above occurred.
When the existing firms in a competitive industry have different operating costs:
a. the highest-cost firm in operation breaks even, while the low cost firms will earn profit. b. the highest-cost firm in operation breaks even, while the low cost firms leave the industry. c. the low cost firms earn a larger profit than the high-cost firms. d. the highest-cost firms will incur a deadweight loss.
Used alone, an expenditure-reducing policy that lowers aggregate demand
A) will not reduce the current account deficit. B) is likely to cause a recession. C) will be likely to increase the current account deficit. D) is likely to increase domestic inflation.