Banks, like any other business, face a world of uncertainty and they either make a profit or suffer loss. If the losses become substantial, banks can fail and that occurs when
a. all of their loans are repaid and they cannot loan out their excess reserves
b. the legal reserve requirement is raised and they have to curtail the amount of money they can lend
c. a large proportion of their loans are not repaid (loans became bad investments) and depositors want more of their demand deposits than the bank has on hand
d. excess reserves are greater than required reserves and banks have too much money in their vaults
e. interest rates go so high banks are unable to make loans
C
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An economy can produce various combinations of food and shelter along a production possibilities curve (PPC). We first increase the production of shelter along the PPC. If we then continue to shift more and more production to shelter, then which of the following will most likely happen to the opportunity cost of a unit of shelter?
a. Opportunity cost must stay constant if we are to stay on the production possibilities curve. b. Opportunity cost will increase because as more and more shelter is produced, labor and capital that is highly productive at producing food is being shifted to shelter production, and so more and more food is being given up to produce a unit of shelter. c. Opportunity cost includes all options given up to produce shelter. d. Opportunity cost is the amount of labor (but not capital) that is used to produce the extra shelter.
Exhibit 1A-8 Straight line relationship
According to the Exhibit 1A-8, the relationship between the price and quantity purchased of pizza is:
A. direct. B. inverse. C. complex. D. independent.