Suppose that the reserve requirement for checking deposits is 12.5 percent and that banks do not hold any excess reserves.
1 answer:
Answer:
1) If the Fed sells $2 million of government bonds, the economy’s reserves Decrease by $2 million, and the money supply will Decrease by $16 million.
2) The money multiplier will remain unchanged. True
3) As a result, the overall change in the money supply will remain unchanged. True
Explanation:
1.) We have the reserve requirement for checking deposits as 12.5% with banks not holding any excess reserves.
To calculate Money Multiplier:
Money Multiplier = =
= 8
If the Fed sells $2 million of bonds, reserves will decrease by $2 million and the money supply will decrease by 8 x $2 million = $16 million.
2) and 3) Now the Fed lowers the reserve requirement to 10 percent, but banks choose to hold another 2.5 percent of deposits as excess reserves.
To calculate Money Multiplier:
Money Multiplier = =
= 8
Money multiplier is 8 same as in 1) Therefore the statements: "The money multiplier will remain unchanged" and "As a result, the overall change in the money supply will remain unchanged" are both True.
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Answer: <em>Please refer to Explanation</em>
Explanation:
1. The fish in the river are considered <u>rival in consumption</u> and <u>non-excludable</u> whereas the fish in the private stream are <u>rival in consumption</u> and <u>excludable</u>.
When a good is said to be Rival in Consumption, it means if it is consumed by one person first, another person cannot get it which reduces their chances of getting the same good. Once Eric consumes or catches a fish, no one else can catch that fish which means fishing is a Rival in consumption activity.
When a good is said to be Excludable, it means that people can be prevented from accessing the good of they have not paid for it. The pond on Eric's property is private so people cannot just come in and fish. It is Excludable. Non-Excludable on the other hand is the inverse and means people who have not paid can access the good like the river in town.
2. In other words, the fish in the river are example of <u>common resource </u>and the fish in the private stream are an example of <u>private good</u>.
Common resources are available to everyone as they are in the public domain like the fish in the river. Private goods however are not in the public domain and ate meant to be accessed by only certain people like the private stream which is only accessible by Eric's family or whoever they want to have access to it.
3. Fishing in the river will likely lead to the <u>tragedy of commons</u> because of which of the following reasons?,
B. anyone can fish in the river, and one person's fishing activity decreases the ability of someone else to fish with success.
The Tragedy of the Commons is an Economic explanation of the situation whereby people who have easy access to a resource such as the river in this instance, are able to use it with little cost to them. This might lead to a situation where they use it to the detriment of others because they will fish more and this will reduce the amount of fish left for others.
