Firms require capital to invest in productive opportunities. The best firms with the most profitable opportunities can attract capital away frominefficient firms with less profitable opportunities. Investors supply firms with capital at a cost called the interest rate. The interest rate that investorsrequire is determined by several factors, including the availability of production opportunities, the time preference for current consumption, risk, andinflation.Suppose the Federal Reserve (the Fed) decides to tighten credit by contracting the money supply. Use the following graph by moving the black X toshow what happens to the equilibrium level of borrowing and the new equilibrium interest rate.S2S116DEquilibriumINTEREST RATE, r (Percent)

A monetary policy that brings down the rate of (i)interest and invigorates acquiring is known as an…

Answered: Firms require capital to invest in…

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter15: Fiscal Policy

Section: Chapter Questions

Problem 10SQP

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At an equilibrium purchasing power of money A. People will stop working because they do not need any additional cash balances B. Overall prices will have no tender 2 change C. People have extra money to spend D. The demand for money is unlimited
Suppose the government decides to borrow money. The equilibrium interest rate will _____ and the total amount borrowed will _____
An increase in the money stock has no effect on equilibrium income whenever the a. IS curve is horizontal. b. LM curve is vertical. c. IS curve is vertical. d. LM curve is horizontal.
In Exhibit 1, as production increases, firms resort to offering higher wage rates to attract the dwindling supply of unemployed resources in: Group of answer choices the segment labeled ab. the segment labeled bc. the segment labeled cd. both segment bc and segment cd. PreviousNext
According to the quantity theory of money, the price level is: Selected Answer: a. indeterminate in the long run. Answers: a. indeterminate in the long run. b. determined by the money supply only. c. exogenous. d. determined by the ratio of the effective quantity of money to the volume of goods. e. determined by the volume of goods produced.
Firm X, a leading manufacturer of rubber tires in country A, caters to almost one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon Reeds, the CEO of firm X, feels that these fluctuations in the business environment are short-lived and expects the economy to recover very soon. In spite of the recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The firm's marketing head, Sandra Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making large-scale investments in the present climate. Which of the following, if true, would support the CEO's claim? A. The government recently announced a plan to offer incentives to buyers in the car and household appliances market. B.…
Firm X, a leading manufacturer of rubber tires in country A, caters to almost one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon Reeds, the CEO of firm X, feels that these fluctuations in the business environment are short-lived and expects the economy to recover very soon. In spite of the recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The firm's marketing head, Sandra Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making large-scale investments in the present climate. Which of the following, if true, would support the marketing head's claim? A. In the previous recession, a leading player in the hospitality sector had expanded its facilities but was unable…
Please answer both sir I will rate immediately We don't typically see wages fall in response to an economic downturn because: Multiple Choice they are "sticky" and are slow to respond to shifts in the economy. labor supply adjusts so that the market stays at the original equilibrium wage level. the government sets tight regulations on how firms compensate their employees. there is often little change in the labor market in response to economic conditions. Wage stickiness in an economic downturn can result in: Multiple Choice a surplus of labor. a shortage of labor. actual wages that are temporarily above the market-clearing level. cyclical unemployment
In the short run, the quantity of output supplied by firms can deviate from the natural level of output if the actual price level deviates from the expected price level in the economy. A number of theories explain reasons why this might happen. For example, the misperceptions theory asserts that changes in the price level can temporarily mislead firms about what is happening to their output prices. Consider a soybean farmer who expects a price level of 100 in the coming year. If the actual price level turns out to be 90, soybean prices will (decrease/not change/increase) , and if the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, she will respond by (raising/lowering) the quantity of soybeans supplied. If other producers in this economy mistake changes in the price level for changes in their relative prices, the unexpected decrease in the price level causes the quantity of output supplied to (fall short of/exceed) the…
• A series of natural disasters occurs that causes the following changes in the U.S. economy: The real gross domestic product drops by 4 percent. The inflation rate rises from 5 percent to 10 percent. Unemployment increases from 6 percent to 10 percent. Suppose that the federal government, holding taxes constant, increases its spending and the Federal Reserve increases its purchases of bonds. Explain in detail the short-run effects of these actions on each of the following: (i) Output and employment (ii) Prices (iii) Interest rate
Identify any two factors that will cause a shift to the supply of dollars curve.
When the demand for money is greater than the supply of money: A) people offering to sell nonmonetary financial assets must increase the interest rate these assets pay in order to sell them. B) more people will hold money. C) the opportunity cost of holding money will fall. D) interest rates will fall.

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