Why does the money supply increase when the Fed buys a bond but does not change when a business buys a bond?
What will be an ideal response?
The reserves in the banking system increase when the Fed buys bonds but remain unchanged when a business buys bonds. When a business buys bonds, a check is written on one bank and deposited in another. The reserves of one bank increase but fall in the other, so there is no net change. When the Fed buys bonds, reserves increase in a bank but don't decrease anywhere else since the Fed can add to the reserves of a member bank.
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The use of fiscal policy to stabilize the economy is limited because
A) changes in government spending and tax rates have a small effect on interest rates. B) the Internal Revenue Service (IRS) resists changes in tax rates because of all the changes they would have to make to the tax code. C) changes in government spending and tax rates have a small effect on aggregate demand. D) the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way.
Suppose you are the manager of Good Smells, a home fragrance firm. To make your fragrance, you purchase orange peels from orange juice manufacturers. If the demand for orange juice increases, this will cause the production of orange juice peels to ________ and the price of orange juice peels to ________.
A) decrease; rise B) increase; rise C) decrease; fall D) increase; fall
Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $100. (iii) Total revenue equals $300
a. (i) only b. (iii) only c. (i) and (ii) only d. (i), (ii), and (iii)
A computer programmer working in India relocates to the United States. This is an example of
A. cross-border trade. B. international outsourcing. C. factor intensity reversal. D. factor mobility.