You receive a $1,000 gift from your grandmother when you graduate from college. Your grandmother withdrew the $1,000 from her checking account and gave you ten $100 bills. You deposit the ten bills into your checking account. Discuss the impact of these transactions on your grandmother's balance sheet, your balance sheet, and the Fed's balance sheet.
What will be an ideal response?
Let's start with the grandmother. The only change for her is on the asset side of her balance sheet; when she converted bank deposits to currency her assets didn't change, just the composition, with deposits decreasing by $1,000 and currency increasing by $1,000. Once she presents the gift to you, her assets (currency) will decrease by $1,000, but your asset of currency increases by $1,000. With your deposit of the $1,000 of currency into the bank, the composition of your assets changes from currency to deposits. Now for the Fed, when grandmother converts the $1,000 deposit into currency, the Fed's balance sheet changed only in terms of composition. The reserves decreased by $1,000 and the currency increased by $1,000. With your deposit of the $1000 of currency into the bank, the liability of currency decreased by $1,000 and the liability of reserves increased by $1,000.
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What will be an ideal response?
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Suppose that when the price of milk rises 10%, the quantity demanded of milk falls 2%. Based on this information, what is the approximate absolute price elasticity of demand for milk?
A) 5.0 B) 0.2 C) 0.5 D) 2.0
The law of supply indicates that:
A. producers will offer more of a product at low prices than they will at high prices. B. consumers will purchase less of a good at high prices than they will at low prices. C. the product supply curve is downsloping. D. producers will offer more of a product at high prices than they will at low prices.