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Effects of open-market transactions by the Fed
1. Suppose the Federal Reserve sells government securities from its existing holdings to the financial sector and the non-bank public. Trace through the expected consequences of this secondary market action on the banking system - reserves, loanable and investable funds, and deposits; financial markets - bond and stock prices, and interest rates; inflationary pressures; credit-sensitive spending; and the general state of the economy as measured by real GDP (or real income) and unemployment.
2. Deficit spending at the Federal level involves increased government purchases or reduced net taxation with new bonds issued by the US Treasury. The Treasury must sell these new bonds to the public. The Federal Reserve can allow this without adjusting its own policies or, by combining this sale with open market purchases, it can, in effect, monetize the debt. What are the consequences for interest rates, spending financed by private borrowing, the money supply, the bond supply and inflation from each of these two options for dealing with new Treasury issues? In the second case for simplicity, assume the open market purchase by the Fed matches in value the auction and sale of new Treasury securities.
Now, assume the ECB also employs comparably aggressive policy. Copy your results from the left graph and show on the right graph how the ECB could affect the USD/EUR exchange rate.
Assume two firms, A and B, serve a market with demand D(p) = 11 - p. Also assume that (i) firms compete for market share
Suppose two nations are considering specializing in either calculators or personal computers. If solely producing calculators, country A can produce 300 and country B can produce 400.
Find out the optimal weekly output and price of this firm. Find out the weekly profit from the production and sale of this product.
Explain why did the Fed begin to raise interest rates at a point in the economic recovery with concerns over terrorism and rising energy prices causing great uncertainty.
Explain how should she reallocate her expenditures among the two goods.
Assume that a chair manufacturer is producing in the short run (with its existing plant and equipment). The manufacturer has observed following levels of production corresponding to different numbers of workers:
Make sure to include some final recommendations and strategic initiatives.
Consumption of apples drops from 30 pounds of apples a month to 21 pounds of apples.
What are the firm's fixed costs? What is the firm's marginal cost? Now suppose other firms in the market sell the product at a price of $10.
Use the firm's isoquant-isocost diagram and the firm's marginal cost curve to explain and illustrate the output and substitution effects of a decrease in the price of labor.
Illustrate what methods does Rakuten use to make it easy for a small or medium size business to use its shopping platform.
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