“The main purpose of required reserves is to promote bank liquidity and protect depositors.” Evaluate this statement.
What will be an ideal response?
This statement is incorrect. The amount of reserves held by banks represents only a fraction of their liabilities. These reserves would be little assistance for banks in the case of a run on the bank. Rather, required reserves allow the Federal Reserve to control the lending ability of commercial banks. Required reserves are also useful for clearing checks.
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Jane is deciding whether to go to school for 8 weeks this summer. The cost of tuition and textbooks is $1,700 and housing and other expenses will cost her $600
If she does not go to school, she will live in her parents' house for free and they will cover her food and other expenses for her. Also, if Jane does not go to summer school she could work fulltime. But the best job she can get pays only $600 per week, and Jane would only agree to give up her free time for no less than $750 per week. However, if she goes to summer school, she'll have to spend 40 hours a week attending classes and studying. a) What will the summer school cost Jane in terms of money spent? b) What are the opportunity costs of going to summer school that Jane does not pay explicitly? Explain. c) What is Jane's total opportunity cost of going to school this summer? Explain your answer. d) Suppose that if Jane does not go to summer school, she will eventually take the classes anyway. What is Jane's marginal benefit of going to summer school? e) Suppose Jane decides to go to school in the summer. Explain her decision using the concepts of marginal cost and marginal benefit.
Gabriel operates a tree-trimming business in Maine. He charges the perfectly competitive price of $47 per hour. The marginal cost of working the 36th hour each week is $42; the marginal cost of working the 37th hour is $44; the 38th hour is $46; and the 39th hour is $48. How many hours should he work each week?
a. He should work 40 hours per week, because he can always earn more revenue by working more. b. He should work 39 hours per week, because he would have to lower his price if her wanted to work more than that. c. He should work 38 hours per week, because this is the workload that maximizes his net gain. d. He should work 36 hours per week, because the marginal cost of working rises after this point.