Under what circumstances will the law of one price hold, and when might it not hold?
What will be an ideal response?
When arbitrage can easily occur and transactions costs are zero, the law of one price will hold, but if transactions costs are not zero, the law of one price may not hold.
Economics
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If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would:
A. Increase by $5 billion B. Decrease by $5 billion C. Be added to net worth D. Remain the same
Economics
Starting from long-run equilibrium, a large decrease in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; lower; potential B. expansionary; higher; potential C. recessionary; lower; potential D. recessionary; lower; lower
Economics