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Banks and savings and loans were allowed to issue NOW accounts nationwide in 1981. An unexpected result was that the relationship between the growth of M1 and GDP broke down. The reason was that customers of depository institutions transferred funds from savings accounts, which are part of M2, into interest-bearing NOW accounts, which are part of M1. The Fed stopped using the growth of M1 as a major policy variable for monetary policy in 1982. Shortly thereafter in 1987, the Fed no longer set growth targets for M1.
In the early 1990s, the growth rate of M2 and a fairly strong relationship between it and GDP began to break down. What happened is that some holders of savings and time deposits moved those funds into mutual funds. M2 decreased but economic activity did not. The upshot was that the Fed could not rely on the past historical relationship between M2 and GDP.
If the relationship between the money supply and the level of economic activity is not predictable using either M1 or M2, what can you say about how well the quantity theory of money predicts the effect of an increase in the money supply on the level of GDP during a recession? What do you think is the explanation?
What is one important characteristic of perfect competition? What is the expected slope of the demand curve for a firm in perfect competition? What characteristic of a monopoly will most likely ensure economic profit in the long run? What is the main..
Suppose the demand and supply of chickens is given by: Graph the demand and supply curves and determine the equilibrium price and quantity. Suppose a quota of 4000 chickens in imposed. What will be the new equilibrium price? What is the loss to consu..
How much would you pay for a perpetual bond that pays an annual coupon of $80 per year and yields on competing instruments are 20%? You would pay ___? If competing yields are expected to change to 12?%, what is your expected capital gain? (or loss)?
q1. assume you were appoint as an adviser to a developing country and you were versed in the theory of production the
Prices the selling monopoly charges for TV sets in periods 1 and 2.
Under what conditions would firms be likely to support an industry-wide advertising ban. Please provide a few examples.
Government could address the problem with increasing government spending, cutting taxes, or both. If the government decided to increase spending to address the problem, by how much should spending be increased? What could happen to make the policy y..
Suppose that the labor market is competitive and there are a total of 1,000 black workers and 1,000 white workers (who each supply their labor in elastically). Both black and white workers are equally productive, having constant individual dollar pro..
Consider a model of Cournot competition as studied in class, with 2 firms and a linear inverse demand function P(Q) = a – Q (where Q = q1 + q2 is the total quantity produced by the two firms and a is a parameter). The firms have different marginal co..
Many factors affect the supply and demand of carbonated sodas. Draw and accurately label a graph that shows a decrease in the supply of sodas to the market, you must accurately label the graph. What are the two most significant unintended economic co..
A teacher needs to grade 200 exams. She claims that exams require an average of 12 minutes to grade with a standard deviation of 3 minutes. A random sample of 36 exams is selected. Suppose the sample mean is 11 minutes. What is the probability that t..
Create a table where Q equals 0, 10, 20, 22.5, 30, 40 50 and 55. In the table include Quantity, Price, Total Revenue, Marginal Revenue (where MR equals the change in TR divided by the change in Q in the table), MR where MR=a-2bQ (include an explanati..
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