Answer:
The correct answer is C)A decrease in the money supply and an increase in the interest rate.
Explanation:
The Discount Rate is the interest rate that the Fed charges to commercial banks for 24-hour or less loans. Commercial banks turn to the FED for these loans when they are in an emergency situation, and are about to lose all reserves, and suffer a bank failure. This is why the Discount Rate tends to be higher than the federal funds rate.
If the FED increases the discount rate in order to apply contractionary monetary policy, the effect will be first a decrease in the money supply because banks will have less incentive to loan, and if they loan less, they create less money (remember than in a fractional reserve banking system banks create money), and thus, the money supply falls.
Secondly, this policy results in a higher interest rate because the less money supply, the less available loans, and the higher the interest rate on those fewer loans.
A company that operates over the long term in a perfectly competitive market is compelled by competition to change its scale of operation until average cost is minimized.
More about perfectly competitive market:
In a market structure known as perfect competition, numerous businesses sell comparable goods while making almost little profit because of the intense competition.
A market that is perfectly competitive is one in which all enterprises sell the same good and where there are no barriers to entry or leave. The existence of several enterprises and the homogeneity and uniformity of the products are essential elements of perfect competition.
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The effect of the decrease in the price of the guitars illustrates an elastic demand.
<h3>What does the price change illustrate?</h3>
The first step is to determine the percentage change in the price of the guitars.
Percentage change in price = (2499 / 2699) - 1 = -0.074 = -7.4%
Now, determine the price elasticity of demand =30 / -7.4% = -4.1
The coefficient of elasticity is greater than 1 in absolute terms, thus the demand is elastic.
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