How does the interest paid on reserves set a floor for the federal funds rate?
What will be an ideal response?
If the federal funds rate was lower than the interest on reserves, banks could borrow from one another at a low rate and earn a risk-free return on reserves. Competition between banks to carry out the risk-free arbitrage would force the federal funds rate up to the interest rate on reserves.
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In the 1960s, government policy makers believed that they could: a. stabilize the economy by letting the market system solve all problems. b. reduce unemployment by running federal budget surpluses
c. eliminate government's role in stabilization policy. d. use changes in the money supply to virtually eliminate business cycles. e. use taxation and government spending to fine-tune the economy.
According to the convention followed in the text, "money" consists all of the following except
a. coins. b. credit cards. c. checkable deposits. d. paper money.
If a firm that produces honey is facing elastic demand, then the firm would decrease price to increase revenue
a. True b. False Indicate whether the statement is true or false
One reason the government enacts fiscal policy instead of waiting for the economy to correct itself is the automatic adjustment:
A. will cause permanent inflation. B. means a lower level of potential GDP. C. can take a very long time. D. is generally not supported by government officials.