Suppose the Fed purchases $100 million of U.S. securities from security dealers. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a:
a. $100 million decrease in the money supply.
b. $100 million increase in the money supply.
c. $200 million increase in the money supply.
d. $500 million increase in the money supply.
d
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Use the following table to answer the next question. The money supply and investment are in billions.Money Supply (billions of dollars)Interest RateInvestment (billions of dollars)$507%$100606110705120804130903140 Assume that the MPC is 0.8 and the reserve requirement is 0.1. If the Federal Reserve needs to increase aggregate demand by $100 billion at each price level to move the economy back to full employment and the current interest rate is 7%, then the Federal Reserve should ________ bonds on the open market equal to ________.
A. sell, $2 billion B. sell, $4 billion C. buy, $4 billion D. buy, $2 billion
One method for solving the adverse selection problem is
A) to restrict the ability of the party with information from taking advantage of hidden information. B) by having the government run all firms. C) to close down firms with bad reputations. D) All of the above.
If the taste for a good decreases, the
A. demand curve will shift to the right. B. supply curve will shift to the left. C. supply curve will shift to the right. D. demand curve will shift to the left.
Think of a personal example similar to the one in the text where someone you know can perform many tasks better than others, but still should specialize in what he/she does best according to the principle of comparative advantage.
What will be an ideal response?