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Suppose that the Federal Reserve strictly follows a rule of keeping the interest rate at 3% per year. Initially, this interest rate equates the demand and supply of real money balances. The economy then experiences a negative shock to the demand for money. In other words, there is a drop in the demand for real balances that people want to hold at a given interest rate and real income.
(a) If the Fed didn't change the money supply, what would happen to the interest rate?
(b) If the Fed wanted to keep the interest rate constant following this money demand shock, how would it change the money supply?
(c) Suppose that over time the economy experiences many positive and negative demand shocks.
Further, suppose that the Fed follows a policy of always keeping the interest rate constant. Would the Fed's constant interest rate rule increase the variance of the money supply? Is this a bad thing under the circumstances?
What price will the monopolist charge and how much output will he produce? Sketch a diagram of this market and show the equilibrium price and quantity. In addition, calculate the firm's profits.
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Elucidate a monopoly which formed naturally or through vertical or horizontal mergers.
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The textbook claims that when people do not have to pay anything to use valuable resources, such as urban roadway space, they will continue using them until their value diminishes to zero.
The following item appeared in a major daily newspaper: does this observation in fact violate laws of supply and demand.
Most of the critics argue that America has too many elections, a surplus of elected officials, and unwieldy layers of government.
The manager of a corporate division faces possibility of an audit each year. She prefers to spend time preparing if she will be audited;
Elucidate the policy which change, you would recommend also how this change would be financed.
He define you that the report will be handed out to the staff prior to the staff meeting next week and that it should outline the various forms of market structure.
Compute the income elasticity of demand for product below, by using average values for quantities and incomes.
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