The Fed could use reserve requirements as a monetary policy instrument. In terms of desirable features for policy instruments, assess the viability of using reserve requirements.
What will be an ideal response?
Reserve requirements are certainly observable by everyone. The Fed could announce these publicly so everyone would know what they are. The problems come in with the features of controllability and the ability to change these quickly. They would have to be announced with enough time for banks to adjust; also, as we saw with the money multiplier, the Fed cannot control the amount of excess reserves the banks hold. If banks really believed the Fed would change the reserve requirements often they may hold considerable excess reserves and then the link between the instrument and the ultimate objective would be seriously weakened.
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When spending and incomes in an economy increase,
A) imports are likely to increase. B) imports are likely to be unchanged. C) imports are likely to decrease. D) exports are likely to decrease.
If education produces positive externalities and the government does not intervene in the market, we would expect
a. the market equilibrium price to be higher than the efficient equilibrium price b. the market equilibrium quantity to be lower than the efficient equilibrium output level. c. the market equilibrium quantity to be higher than the efficient equilibrium output level. d. none of the above