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Banks are currently required to hold at least 10% of their checking deposits as reserves.
a. Many bankers would prefer that the required reserve ratio be lowered to 0% (as in Canada and England, where there are no reserve requirements). Explain why this would tend to make the banks more profitable.
b. In the 1960s the federal funds market (i.e., the overnight interbank loan market) became very well developed, and banks began to hold fewer excess reserves. Explain why a well-developed federal funds market would induce banks to hold fewer excess reserves.
c. In 2008 the Fed began paying interest on banks’ reserves. Explain how the new policy might have induced banks to hold more excess reserves (as in fact they did).
Can you explain how fiscal policy (making changes to government spending and taxes) would affect aggregate demand (AD)? How do these two mechanisms of expansionary policy differ? What were the major areas of disagreement between John Maynard Keynes a..
Assume that the Demand curve is given as Q=250-5P and the supply curve as P=10+Q. What would be the price and quantity with perfectly competitive markets? What will happen to price and quantity if the government provides a specific subsidy of $1 per ..
You purchase 27 call option contracts with a strike price of $145 and a premium of $3.65. Assume the stock price at expiration is $157.40. What is your dollar profit? What if the stock price is $143.35? What is the dollar return?
Suppose that you deposit $2,000 in a savings account and a year later you have $2,300. Meanwhile the CPI rose from 110 to 121. The real interest rate is ____%. Enter your answer in the box below
Look at each of the following cases from the point of view of the balance of payments for the United States. Determine the "subcategory" of the current account or financial account that each transaction would be classified in, and state whether it wo..
why would china want its own currency to be undervalued relative to the u.s. dollar? how does china maintain an
What make both the farmer and the rancher willing to trade with one another.
Government Policy in an Open Economy. Describe arbitrage and explain what is necessary for arbitrage to work. Explain the twin deficits effect.
When using a supply-and-demand model to illustrate how land rents are set, economists typically draw the supply curve as a vertical line because: a. The supply of land is fixed. b. The supply of land is perfectly inelastic. c. The quantity supplied o..
What values and behavior were expected of Japanese samurai? Describe the role of the daimyo in Tokugawa Japan, as portrayed in episode two. What was the "floating world" in Tokugawa Japan?
Identify the nature of the “pitfall” to sound economic reasoning represented by the following circumstances: You are attending a concert and recognize that you will have a better view of proceedings if you stand—hence if everybody stood…everybody wou..
Mr. and Mrs. Ward typically vote oppositely in elections and so their votes “cancel each other out.” They each gain two units of utility from a vote for their positions (and lose two units of utility from a vote against their positions). Suppose Mr. ..
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