When one commercial bank borrows from another commercial bank, it pays the __________ rate
A) discount
B) bank interest
C) federal funds
D) prime
E) none of the above
C
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Railway engines create sparks, which sometimes set fire to crops planted near the tracks. A large number of farmers are affected, and transactions costs prevent the farmers and the railroad from negotiating bribes or side payments. The price of railway service is $250 per train, and each train causes $50 of crop damage. The accompanying diagram shows the relevant market for railway service.
(i) Suppose a Pigovian tax of $50 per train is imposed on the railroad. By how much will social gain increase?
(ii) Suppose that the farmers can move their crops away from the tracks at a cost of $2,400 per month. If the goal is to achieve economic efficiency, who should be made liable for the crop damage? What will be the resulting social gain?
(iii) Suppose that farmers still have the option of moving their crops as described in part ii. Also suppose that the railroad can install safety equipment that will prevent the engine sparks at a cost of $25 per train. If the goal is to achieve economic efficiency, who should be made liable for the crop damage? What will be the resulting social gain?
When there is an expansionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; expand B. increase; raise; decline C. decline; lower; decline D. decline; raise; decline
Refer to Figure 15-7. Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy. Using the static AD-AS model in the figure above, this situation would be depicted as a movement from
A) B to C. B) B to D. C) C to B. D) C to D. E) A to B.
What is a flexible exchange rate and how does it work?
What will be an ideal response?