What are pecuniary externalities? Explain with the help of an example
What will be an ideal response?
A pecuniary externality occurs when a market transaction affects others through market prices. For example, if a large number of consumers decide to purchase a car, the price of the car will increase due to an increase in demand. This creates a pecuniary externality for other potential buyers of the car in the form of higher prices.
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Open market purchase will result in:
A) increase in bank reserves and a decrease in the federal funds rate. B) increase in bank reserves and an increase in the federal funds rate. C) decrease in bank reserves and a decrease in the federal funds rate. D) decrease in bank reserves and an increase in the federal funds rate.
A rise in the price of a nation's currency relative to foreign currencies is called
a. appreciation b. depreciation c. surplus on current account d. foreign exchange e. devaluation