The Fed could use reserve requirements as a monetary policy instrument. In terms of desirable features for policy instruments, assess the viability of using reserve requirements.
What will be an ideal response?
Reserve requirements are certainly observable by everyone. The Fed could announce these publicly so everyone would know what they are. The problems come in with the features of controllability and the ability to change these quickly. They would have to be announced with enough time for banks to adjust; also, as we saw with the money multiplier, the Fed cannot control the amount of excess reserves the banks hold. If banks really believed the Fed would change the reserve requirements often they may hold considerable excess reserves and then the link between the instrument and the ultimate objective would be seriously weakened.
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Suppose Sarah owns a small company that makes wedding cakes. The table below shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day.Number ofCakes Per DayTotal CostPer Day0$1001$1802$2203$3004$4005$5206$660If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $125 each, then Sarah should produce ________ cakes per day.
A. 3 B. 6 C. 5 D. 0
In an attempt to forecast enrollment, a major university hired an economist to give a "head count." One variable which she would probably emphasize more than any other in trying to forecast this is
a. how interested people are in attending college. b. the employment opportunities that college opens up. c. survey results on public interest in education. d. her instinct about what the public wants. e. tuition (the price of attending).
Dan was certain that his upcoming economics test would be so easy that he could wait to study until the night before and still do well on the exam. When he cracked open his book and notes the night before the exam, he realized he should've started
studying earlier. According to behavioral economics, Dan's error was caused primarily by: A. a planning fallacy. B. an overconfidence effect. C. framing effects. D. hindsight bias.
The marginal rate of transformation of y for x represents
A) the slope of the budget constraint. B) the rate at which the consumer must give up y to get one more x. C) - / . D) All of the above.