Which of the following is false?
a. The Fed controls the supply of money, even though privately owned commercial banks actually create and destroy money by making loans.
b. With a 10% required reserve ratio, a $10,000 cash deposit in a bank would result in an increase in the bank's excess reserves by $1000.
c. With a 10% required reserve ratio, a $1,000 bond purchase by the Fed directly creates $1,000 in money in the form of bank deposits, and indirectly permits up to $9,000 in additional money to be created through the multiple expansion in bank deposits.
d. When the Fed sells government bonds, it will tend to cause a multiple contraction of bank deposits.
b
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Briefly explain why the decline in housing prices led to a major financial crisis
What will be an ideal response?
The substitution effect of a price change refers to
A) the change in quantity demanded that results from a change in price making a good more or less expensive relative to other goods that are substitutes. B) the shift of a demand curve when the price of a substitute good changes. C) the movement along the demand curve due to a change in purchasing power brought about by the price change. D) the shift in the demand curve due to a change in purchasing power brought about by the price change.