Suppose banks hold no excess reserves, households and firms do not change the amount of currency they hold, and the required reserve ratio is 25%
If the Federal Reserve purchases $1 million in treasury securities, what will be the changes in bank reserves and total checking account deposits in the whole banking system?
Bank reserves will increase by $1 million when the seller of the Treasury security deposits the $1 million in her checking account. Total checking account deposits in the whole banking system will increase by the original $1 million deposit times the deposit multiplier of 4, or $4 million.
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The ratio of government debt to GDP since 1940 indicates that the U.S. has mostly been:
a. a net creditor by at least 20% of the value it produces each year. b. a net creditor by at least 10% of the value it produces each year. c. a net borrower by at least 20% of the value it produces each year. d. a net borrower by at least 40% of the value it produces each year.
Is a monopolistically competitive firm allocatively efficient?
A) No, because it does not produce at minimum average total cost.
B) Yes, because price equals average total cost.
C) No, because price is greater than marginal cost.
D) Yes, because it produces where marginal cost equals marginal revenue.