Suppose the required reserve ratio is 100%. Explain if the Federal Reserve could still change the money supply with open market operations?
What will be an ideal response?
The Federal Reserve could still change the money supply because the initial purchase or sale of Treasury securities would still change checking account deposits. The simple deposit multiplier would equal one, so if the Fed purchased $1 million in securities, deposits would increase by $1 million, and if the Fed sold $1 million in securities, deposits would decrease by $1 million.
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In the presence of asymmetric information, the only contract that results in production efficiency and no moral hazard is the one in which
A) the agent receives a fixed fee. B) the principal receives a fixed rent. C) profit is shared. D) revenue is shared.
As a firm attempts to increase its production, its long-run average costs eventually rise because of
A) the law of diminishing returns. B) diseconomies of scale. C) fixed capital. D) insufficient demand.