Banks are able to create money:
a) with a printing press.
b) by issuing loans.
c) by selling bonds.
d) by charging interest.
Answer: b) by issuing loans.
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Why does a principal-agent problem create transactions costs? If the goal is economic efficiency, what liability rule should be used when a principal-agent problem exists?
What will be an ideal response?
A bank holds its reserves as ________ and ________
A) securities; loans B) vault cash; deposits at the Federal Reserve C) vault cash; loans D) securities; deposits at the Federal Reserve
A price-taking firm will tend to expand its output as long as price exceeds average variable cost and: a. its marginal revenue is positive
b. its marginal revenue is greater than the market price. c. its marginal revenue is less than the market price. d. its marginal cost is less than the market price.
If the wage is fixed at $8 per hour, the total labor cost of employing four workers for 8 hours is
a. $8 b. $32 c. $64 d. $256 e. $2,048