Assume a simplified banking system subject to a 20 percent required reserve ratio. If there is an initial increase in excess reserves of $100,000, the money supply:
A. increases $100,000.
B. increases $500,000.
C. increases $600,000.
D. decreases $500,000.
Answer: B
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Consider the salary of Mary Sue Nelson, a sales agent for Plain Truth Advertising. She has an effort cost of C = e2 and a reservation wage of $1,500 so that her compensation package is W = 1,500 + 0.2 Q, where the CEO sets the incentive at 0.2 and Q = 200 e. Here effort is known only by the employee. There is a random shock to output each period whose mean is zero. (a) What is the optimal effort for Mary Sue Nelson? (b) On average, what total wage or salary will she earn each month? (c) On average, what is the output of sales contracts that she makes? (d) On average, what kind of profit will the CEO earn off of Nelson's work?
What will be an ideal response?
You operate a shop that repairs TVs and VCRs. The going wage rate in a competitive market for skilled repair people is $18 per hour. Given the current demand for your services, the marginal revenue product of your repair people is $28 per hour. You should
A. increase the number of repair people working for you. B. decrease the number of repair people working for you. C. make no change in the number of people you use. D. lay off all your employees and do all the work yourself.
The rate of growth of our money supply is controlled by
A. the president. B. Congress. C. the Federal Reserve. D. the United States Treasury.
Why does entry into markets decrease firm profits?
What will be an ideal response?