Explain why monetary policy is needed specifically with regard to the existence of excess reserves. Compare and contrast the effectiveness of monetary policy during the Great Depression and the Great Recession?
During a recession, banks will maintain excess reserves because their opportunities to make loans and generate profits decline. By holding excess reserves, banks transform the deposit-creation process into a deposit-destruction process. Such a decrease in deposits and the money supply is precisely what is not needed during a recession. In such a case, a decrease in the money supply would make the recessionary gap larger. During an economic boom, banks respond in the opposite manner decreasing excess reserves in order to make as many loans and as much profit as possible.
During the Great Depression the money supply decreased because banks preferred to hold onto excess reserves in order to maintain funds for the depositors and avoid loans that were unlikely to be repaid. As a result of the decrease in the money supply and the lack of available credit, the economic conditions deteriorated further. In contrast, during the Great Recession of 2007-2009 the Federal Reserve stepped in and flooded the banking system with excess reserves in order to assist financial institutions in making credit available to some degree.
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Use the following table to answer the question below. Giovanni's Production Possibilities ScheduleRuby's Production Possibilities SchedulePounds of Green BeansPounds of CornPounds of Green BeansPounds of Corn0160032040120102408080201601204030801600400The terms of trade for 1 pound of green beans must lie between ________ and ________ pounds of corn.
A. 1, 8 B. 1, 4 C. 1/8, 1 D. 1/8, 2
When economists speak of the CPI bias, they are referring to
A) the tendency for the CPI to overstate price changes. B) the tendency for the CPI to understate price changes. C) the tendency for the CPI to understate inflation. D) errors in measuring the prices used in the CPI. E) the tendency for government officials to impose their values on the data.
Based on the table showing unemployment rates and earnings by educational attainment, which group has the highest unemployment rate?
a. people with a doctoral degree
b. people with some college, but no degree
c. people with an associate’s degree
d. people with less than a high school diploma
Kris, Taylor and Max are the only three residents in a neighborhood. A public good that would benefit all of them has a one-time installation cost of $900. The value of the public good to each resident is shown in the table below. Any tax plan must be approved by simple majority.ResidentReservation PriceIncomeKris$100$1,000Taylor$200$5,000Max$700$6,000 If the government proposes to pay for the public good with a head tax of $300 per resident, then
A. Max will vote in favor of the tax, but Kris and Taylor will vote against it. B. all three will vote in favor of the tax. C. Max will vote against the tax, but Kris and Taylor will vote in favor of it. D. all three residents will vote against the tax.