Why would a bank usually want to minimize the amount of excess reserves it has on hand?
What will be an ideal response?
Reserves are assets held in the form of vault cash and deposits at the Federal Reserve in a non-interest bearing account. As a result, the opportunity cost of holding reserves is usually high. Regulations require banks to hold a certain amount of reserves, called required reserves, but any amounts held above this level are excess reserves and the bank is forgoing the return that could have been earned on these funds.
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This chapter stressed the importance of using appropriate samples for empirical studies. Consider the following two problems in that light
a. You are given a class assignment to find out if people's political leanings affect the newspaper or magazine that they read. You survey two students taking a political science class and five people at a coffee shop. Almost all the people you have spoken to tell you that their political affiliations do not affect what they read. Based on the results of your study, you conclude that there is no relationship between political inclinations and the choice of a newspaper. Is this a valid conclusion? Why or why not? b. Your uncle tells you that the newspaper or magazine that people buy will depend on their age. He says that he believes this because, at home, his wife and his teenage kids read different papers. Do you think his conclusion is justified?
Refer to Table 2-21. This table shows the number of labor hours required to produce a digital camera and a bushel of wheat in China and South Korea
a. Which country has an absolute advantage in the production of digital cameras? b. Which country has an absolute advantage in the production of wheat? c. What is China's opportunity cost of producing one digital camera? d. What is South Korea's opportunity cost of producing one digital camera? e. What is China's opportunity cost of producing one bushel of wheat? f. What is South Korea's opportunity cost of producing one pound of wheat? g. If each country specializes in the production of the product in which it has a comparative advantage, who should produce digital cameras? h. If each country specializes in the production of the product in which it has a comparative advantage, who should produce wheat?
A decrease in aggregate supply will cause the price level to
a. rise and real GDP to fall b. rise and real GDP to rise c. rise and the unemployment rate to fall d. fall and real GDP to rise e. fall and the unemployment rate to rise
To isolate the impact of one single factor, economists invoke the assumption of
A. Ockham's razor. B. post hoc, ergo propter hoc. C. inductive reasoning. D. ceteris paribus.