Explain how a change in the reserve ratio affects the money supply.
What will be an ideal response?
An increase in the reserve ratio will decrease the size of the monetary multiplier and decrease the excess reserves held by commercial banks, thus causing the money supply to decrease. A decrease in the reserve ratio will increase the size of the monetary multiplier and increase the excess reserves held by commercial banks, thus causing the money supply to increase.
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All of the following are possible consequences of noise traders EXCEPT
A) increased volatility in the financial market. B) asset prices differing from fundamental values. C) herd behavior contributing to speculative bubbles. D) reduced volatility of asset prices.
In a free market, the market price and quantity in the above figure will adjust to equilibrium values of
A) $1 per gallon and 50 million gallons. B) $4 per gallon and 10 million gallons. C) $2 per gallon and 60 million gallons. D) $2 per gallon and 30 million gallons.
A tax placed on a good
a. causes the effective price to sellers to increase. b. affects the welfare of buyers of the good but not the welfare of sellers. c. causes the equilibrium quantity of the good to decrease. d. creates a burden that is usually borne entirely by the sellers of the good.
Which of the following would tell us that resources are NOT flowing to their highest valued uses?
A) short-run economic profits B) short-run economic losses C) long-run economic profits D) Some firms are just breaking even.