Describe the three basic tools used by the Fed to change the money supply. Which of these tools is most relied on in practice? Least relied on? Why?
What will be an ideal response?
The Fed can use open market operations, change the required reserve ratio, or change the discount rate to change the money supply. In practice, the Fed most often relies on open market operations because it is the most flexible tool. It allows for the greatest fine-tuning of the money supply. The required reserve ratio is the tool least used in practice because it is potentially so powerful. Changing required reserves could change the money supply too much in one direction or another. Its use could be much like using a sledgehammer to pound in a finishing nail.
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What determines the supply of loanable funds and the demand for loanable funds?
What will be an ideal response?
Bobby faces two choices. The first is to receive $600 on the spot. The other choice is to receive $800 a year from now. The interest rate is 5% per year. What could a possible explanation for Bobby choosing to receive $600 on the spot?
A) Bobby finds that the present value of the $800 a year from now is less than $600. B) Bobby may have time-inconsistent preferences. C) Although Bobby chooses $600 on the spot, he is actually indifferent between the two options. D) None of the above is correct.
The poverty income level equals the:
a. average income of the bottom one-tenth of all income recipients. b. cost of an economical and nutritional food plan for a family multiplied by six. c. cost of an economical and nutritional food plan for a family multiplied by three. d. average income of a family headed by a worker who has been unemployed for six months or more.
Direct controls have a clear advantage when a total ban is necessary
a. True b. False Indicate whether the statement is true or false