A bank develops specialized skills in analyzing companies from one specific industry. This contributes significantly to the bank achieving economies of scale because a large portion of its total loan portfolio is made up of companies in this industry. What are the long-run profit prospects for this bank? Explain.
What will be an ideal response?
The bank may have lowered its transaction costs due to its specialization of mainly lending to firms in one industry but it has considerably increased its idiosyncratic or credit risk. It would likely suit the bank better in the long run to diversify its portfolio so it is only exposed to systematic risk. Ideally if the bank could generate the loans and then securitize them and sell them off (like home mortgages) it may have the best possible outcome.
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How does the expected inflation rate affect the short-run Phillips curve tradeoff between inflation and unemployment?
What will be an ideal response?
Most supermarkets charge the same price for the majority of goods sold. This suggest that
A) the large supermarket chains are price leaders and smaller grocers take these prices as given. B) mark-ups reflect the degree of competition in the supermarket industry. C) supermarkets have colluded to fix prices on most of the goods sold. D) the government regulates prices of most products sold in supermarkets.
In the short run the firm has at least one fixed input
a. True b. False Indicate whether the statement is true or false
According to Keynes, the private sector (by itself)
A) can always move the economy out of a recessionary gap in a timely manner. B) cannot always move the economy out of a recessionary gap in a timely manner. C) can never move the economy out of a recessionary gap. D) can only move the economy out of a recessionary gap if the SRAS curve drops. E) can only move the economy out of a recessionary gap if the SRAS curve rises.