If the reserve requirement is 10 percent and the central bank sells 10,000 in government bonds on the open market, the money supply will <u>decrease by a maximum of $100,000.</u>
<h3>
What is Reserve Requirement?</h3>
- The amount of money that a bank must have in reserve in order to pay its obligations in the event of unforeseen withdrawals is known as the reserve requirement.
- The central bank uses reserve requirements as a tool to alter the amount of money in the economy and affect interest rates.
- Based on a portion of the cash that customers have on hand, banks lend them money.
- In exchange for this power, the government imposes one obligation on them to maintain a minimum balance of deposits to cover potential withdrawals.
- The reserve requirement is the amount that banks must hold in reserve and are not permitted to lend above.
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Answer:
c. increasing; $62.5
Explanation:
The computation is shown below;
As we know that
Multiplier = 1 ÷ 1 - MPC
= 1 ÷ 1 - 0.75
= 1 ÷ 0.25
= 4
Now if the equilibrium GDP is $250 billion less than the expected level of GDP
So, the government spending would be increased by
= $250 billion ÷ 4
= $62.5
Hence, the correct option is c.
Option 3. The characteristic of a monopolistically competitive market is
- II. Firms sell slightly differentiated products.
- III. Each firm faces a downward-sloping demand curve.
<h3>What is the monopolistically competitive market?</h3>
When a large number of businesses provide rival goods or services that are comparable but imperfect alternatives, monopolistic competition exists. In a monopolistic competitive industry, entry barriers are low, and actions made by one firm do not necessarily have an impact on other firms.
A market is said to be monopolistic if just one business is allowed to sell goods and services to the general public.
In monopolistic competition, a business disregards the effect of its own pricing on the prices of other businesses and accepts the prices charged by its rivals as given.
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Willy should buy(a) no insurance since the cost per dollar of insurance exceeds the probability of a flood
Explanation:
Willy's only source of wealth is his chocolate factory. He has the utility function p(cf)1/2 + (1 − p)(cnf)1/2,, where p is the probability of a flood, 1 - p is the probability of no flood, and cf and in are his wealth contingent on a flood and on no flood, respectively. <u>The probability of a flood is p = 1/6. </u>The value of Willy's factory is $500,000 if there is no flood and $0 if there is a flood. Willy can buy insurance where if he buys $x worth of insurance, he must pay the insurance company $2x/17 whether there is a flood or not but he gets back $x from the company if there is a flood. Willy should buy
The answer for the above statement is option ( A.) no insurance since the cost per dollar of insurance exceeds the probability of a flood .
It is because the probability of flood as given in the question is only 1/6, whereas the chances of no flood are 5/6. So that means that he should not buy the insurance because the probability of the flood is comparatively less than the amount Willy has to pay to the insurance company and the amount paid back to willy by the insurance company is $ x worth of insurance
