Suppose a bank has $10,000 in deposits and $1,000 in reserves. The required reserve ratio is 5%. Which of the following occurs if the required reserve ratio is increased to 10%?
A) The bank's required reserves will decrease to $500.
B) The bank's excess reserves will increase to $1,000.
C) The bank's required reserves will increase to $1,000.
D) The bank's ability to create loans increases by 5%.
Ans: C) The bank's required reserves will increase to $1,000.
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A level of GDP cannot be at equilibrium when aggregate demand exceeds output because firms will notice that
a. inventory stocks are building up. b. inventory stocks are being depleted. c. their profits are negative. d. many of their workers have little to do.
Moving downward and to the right along a linear demand curve, we know that total revenue
a. first increases, then decreases. b. first decreases, then increases. c. always increases. d. always decreases.
Opponents of active stabilization policy
a. generally don't believe, even in theory, that fiscal policy can stabilize the economy. b. generally agree that fiscal policy has no impact in the long run. c. believe some effects of monetary policy may be long-lived. d. think the Fed should simply try to fine tune the economy.
Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MCp = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MCe = Q. What is the total external harm at the competitive market level of output?
A) 1350.5 B) 2025 C) 672.5 D) 1012.5