How effective is discount policy as compared to open market operations in managing the money supply? Explain how The Federal Reserve uses discount policy today
What will be an ideal response?
The effectiveness of discount policy in changing the money supply depends upon banks' willingness to borrow reserves. The Fed may lower the discount rate of interest, encouraging bankers to borrow reserves and increase loans. But bankers are not required to increase their borrowing. In contrast, an open market purchase of securities will increase reserves in the banking system and encourage lending. The Fed prefers to limit the use of discount policy to help banks that are temporarily in need of reserves. That is, the Fed uses the policy to serve as a lender of last resort for banks. It did so after the stock market crash in 1987 and after the terrorist attacks on September 11, 2001.
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What is cost-plus pricing? Why do some firms use cost-plus pricing even when the firms' managers have the resources to devise a pricing strategy that would result in greater profits?
What will be an ideal response?
Based on the conventional view of fiscal policy and potential GDP in the long run, explain what happens to each of the following if the government runs a budget deficit:
a. the supply of loanable funds to the private sector b. long-term real interest rates c. the capital stock d. the investment rate e. potential GDP
Beneficial externalities would be removed if the recipients of the benefit paid the producer of the externality
a. True b. False Indicate whether the statement is true or false
In economics, which of the following is the best example of capital?
A.) Money held in a checking account. B.) A computer used by a lawyer to prepare legal documents. C.) Investment in training for employees in an accounting firm. D.) The executive producer of a new adventure movie.