How does a central bank influence the lending capacity of the banks?
A central bank can influence the lending capacity of the bank by varying minimum required reserve ratio. Reserve requirements affect the potential of the banking system to create credit which is a part of money supply. Rising of minimum required reserve ratio will reduce the excess reserve with the bank. It will reduce their credit creation capacity therefore lowers the money supply and increases the interest rate. Similarly, lowering the required reserve ratio will increase the interest rates and set off a multiple expansion of the banking system.
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In the simple Keynesian model which has no taxes and a saving function which is in the form S = -80 + .20Y, a $200 increase in desired investment leads to an increase in equilibrium income of
A) $40. B) $100. C) $400. D) $1000.
Along a downward-sloping, linear demand curve, total revenue is the greatest
A) where demand is normal. B) where demand is the most inelastic. C) where demand is the most elastic. D) where demand is unit elastic.