How does an open market purchase by the Fed affect the level of bank reserves and the interest rate? Illustrate the interest rate effect by drawing the appropriate graph
When the Fed buys government securities from banks it pays for the securities by increasing the reserves of the banks at the Fed. Banks have more reserves and, therefore, more excess reserves since there has been no corresponding increase in deposit liabilities. This increase in excess reserves allows banks to increase their lending, which will increase the money supply. The increase in the money supply will shift the money supply schedule outward and cause a decrease in the level of equilibrium interest rates. Panel (a) of Figure 13-4 in the text is the appropriate graph to illustrate the effects of an expansionary monetary policy on interest rates.
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People who use drive-through windows at restaurants and eat while on the road tend to
a. have a low opportunity cost of time b. have a high opportunity cost of time c. not maximize their utility d. act irrationally e. value their money more than their time
Assume the government decides to reduce spending in order to reduce the budget deficit, which it financed by borrowing in the real credit market. Where and how should you begin your analysis when analyzing the chain reaction of economic interactions?
a. Start the analysis in the real goods market with aggregate demand shifting to the right. b. Start the analysis in the real goods market with aggregate supply shifting to the left. c. Start the analysis in the real goods market with aggregate supply shifting to the right. d. Start the analysis in the real credit market with demand for real credit shifting to the left. e. Start the analysis in the real credit market with demand for real credit shifting to the right.
The statement "government should provide affordable health care coverage for every member of society" is:
A. a statement that everyone agrees with. B. a positive statement. C. a statement that everyone disagrees with. D. a normative statement.
Payments by a corporation to its shareholders are known as
A) stocks. B) bonds. C) coupons. D) dividends.