Beginning in 2008, The Federal Reserve and the U.S. Treasury Department responded to the financial crisis by intervening in financial markets in unprecedented ways. Briefly summarize the 4 key actions of the Fed and Treasury
What will be an ideal response?
Among the actions taken by the Fed and Treasury were: (1 ) In March 2008, the Fed announced that primary dealers—firms that participate in open market operations with the Fed—are eligible for discount loans. (2 ) Also in March, the Fed announced that it would loan up to $200 billion of Treasury securities in exchange for mortgage-backed securities. (3 ) The Fed and the Treasury took direct action to keep large financial institutions from bankruptcy. In March 2008, they helped JP Morgan Chase acquire the investment bank Bear Stearns. The Fed agreed that if JP Morgan Chase acquired Bear Stearns, the Fed would guarantee any losses JP Morgan Chase suffered on Bear Stearns holdings of mortgage-backed securities, up to $29 billion. (4 ) In September the Treasury moved to have the federal government take control of Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac were each provided with up to $100 billion in exchange for 80 percent ownership of the firms.
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The term "market basket" means a
A) collection of goods that can fit into an average shopping cart. B) collection of goods that changes every year and is defined by Congress. C) collection of goods that is used by a typical family. D) collection of goods that is purchased during a holiday season.
If a good has an elastic demand, then:
A. a small percentage change in price will cause a larger percentage change in quantity demanded. B. a small percentage change in price will cause virtually no change in quantity demanded. C. a large percentage change in price will cause a smaller change in quantity demanded. D. any percentage change in price will cause an almost immediate response in quantity demanded.
Suppose when the price of a can of tuna is $1.30, the quantity demanded is 9, and when the price is $1.50, the quantity demanded is 7. Using the mid-point method, the price elasticity of demand is:
A. –1.75 B. –0.57 C. 0.57 D. 29 percent
In the long run, equilibrium for a monopolistically competitive firm resembles equilibrium for a monopoly in the sense that
a. both types of firms are able to earn economic profits b. marginal cost exceeds marginal revenue c. price equals marginal cost d. price exceeds marginal cost e. average revenue exceeds price