A . What is an open market operation? Who conducts them? b. What kind of open market operation would cause the money supply to contract? How does this work? When would the Fed be most likely to do this?
a . An open market operation is the buying and selling of government bonds by the Federal Open Market
Committee.
b. When the Fed sells government securities, it decreases banks' reserves, reducing credit availability, and
likely, reducing spending. The Fed would be most likely to sell government securities if the economy
is in an inflationary phase.
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A country club charges a membership fee. Members pay competitive prices for the club's recreation and restaurant services. This situation is an example of
a. first-degree price discrimination. b. second-degree price discrimination. c. third-degree price discrimination. d. a two-part tariff.
A geographic region in which the benefits of having a common currency exceed the costs is
A) an optimum currency area. B) an exchange-rate mechanism. C) a currency board area. D) a common currency area.
Assuming everything else constant, what effect will each of the following have on the long-term real interest rate?
a. The expected inflation rate decreases. b. The default-risk premium increases. c. Investors expect future short-term interest rates to fall.
Refer to Figure 9.1. If the market is in equilibrium, the consumer surplus earned by the buyer of the 1st unit is ________
A) $5.00 B) $15.00 C) $22.50 D) $40.00