Suppose that apartments rent for $1,300 a month in San Francisco, California and $850 a month in Los Angeles, California. If the state of California passes a state-wide rent ceiling for apartments of $1,100 a month, what occurs in the two cities?
What will be an ideal response?
The rent ceiling is below the equilibrium rent in San Francisco. A shortage of apartments occurs as the quantity of apartments demanded increases and the quantity supplied decreases. The shortage becomes even larger as time passes because, with the rent ceiling, landlords have no incentive to maintain existing apartments or to build new ones. A black market for apartments will emerge, with bribery and "key money" becoming common.
In Los Angeles, the outcome differs. The rent ceiling is above the equilibrium rent and has no impact on the quantity demanded or the quantity supplied. If, however, Los Angeles grows so that the demand for housing increases enough, the time may come when the rent ceiling is below the equilibrium rent in Los Angeles, in which case the Los Angeles apartment market also would be marked by a shortage and black market.
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When an individual deposits currency into a checking account:
A. bank reserves decrease, which reduces the amount banks can lend and reduces the growth of the money supply. B. bank liabilities increase, which reduces the amount banks can lend and reduces the growth of the money supply. C. bank reserves are unchanged. D. bank reserves increase, which allows banks to lend more and increases the money supply.
Explain the differences between using the monetary base versus federal funds rate as the monetary policy instrument. Which does the Fed use as its instrument?
What will be an ideal response?
Using a production possibilities frontier, economic growth is illustrated by a
A) point inside the curve. B) point on the curve. C) movement from one point on the curve to another point on the curve. D) rightward shift of the curve.
Refer to the production possibility graph above. Assume that the economy is in equilibrium at point e. If a war reduces the country's capital stock by 40%, the new equilibrium is most likely to be
A) point b. B) point h. C) point f. D) point d. E) point e.