"Bank failure may not be limited to banks that have mismanaged their assets." Explain why?
What will be an ideal response?
A sound bank faced with the wholesale loss of deposits is likely to close its door even if the asset side of its balance sheet is fundamentally sound because many bank assets are illiquid and cannot be sold quickly to meet deposit obligations without substantial loss to the bank. Students should stress the atmosphere of financial panic, which will lead to self-fulfilling expectations.
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What makes it extremely difficult for cartels to function effectively without government assistance?
A) Cartel members cannot agree among themselves on the optimum price because all have different costs. B) High prices encourage cartel members to offer discounts, and they attract new entrants to the industry. C) Marginal cost will not equal marginal revenue except at output levels beyond the cartel's capacity. D) Public interest considerations usually require an output greater than the cartel's net revenue maximizing output. E) The hostility of the public to price exploitation makes it difficult for the cartel to defend itself against the consequences of popular hostility.
Which of the following equations is most likely to represent short-run aggregate supply according to the misperceptions theory?
A) Y = 6000 B) Y = 6000 + 50(P - Pe) C) P = 2 D) PY = 12,000