Which of the following is a reason why a bank may hold excess reserves?
a. It earns more interest on reserves than on loans.
b. It is required to do so.
c. It may want flexibility to increase its loans if interest rates rise in the near future.
d. Banks often expect a drop in the required reserve ratio.
e. Banks often expect a rise in the required reserve ratio.
C
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Excess capacity is a characteristic of monopolistically competitive firms. What does excess capacity mean?
A) It means that firms hire more than the minimum number of workers needed to produce the profit-maximizing level of output. B) It means that firms build plants that are not large enough to achieve minimum efficient scale. C) It means that firms do not produce the output level that corresponds to the minimum point on their average total cost curves. D) It means that firms produce with inefficient combinations of resources.
In his Liquidity Preference Framework, Keynes assumed that money has a zero rate of return; thus
A) when interest rates rise, the expected return on money falls relative to the expected return on bonds, causing the demand for money to fall. B) when interest rates rise, the expected return on money falls relative to the expected return on bonds, causing the demand for money to rise. C) when interest rates fall, the expected return on money falls relative to the expected return on bonds, causing the demand for money to fall. D) when interest rates fall, the expected return on money falls relative to the expected return on bonds, causing the demand for money to rise.
A price surprise is equal to the expected price level minus the actual price level.
Answer the following statement true (T) or false (F)
Use the list of items below to answer the question that follows.1.Money market mutual funds held by individuals 2.Savings deposits, including money market deposit accounts 3.Currency held by banks 4.Currency held by the public 5.Shares of corporate stock 6.Small time deposits 7.Checkable deposits 8.Large time deposits Refer to the above table. The M1 money supply is composed of items:
A. 3, 4 and 7. B. 2 and 7. C. 3 and 4. D. 4 and 7.