Author Question: In the income-expenditure model, for each price level there is a different equilibrium output level. ... (Read 103 times)

pane00 · **on:** Jun 30, 2018

In the income-expenditure model, for each price level there is a different equilibrium output level. These various price level and equilibrium output combinations are used to derive

A) the slope of the planned expenditures line. B) the aggregate supply curve.
C) the aggregate demand curve. D) a point on the aggregate demand curve.

Question 2

Why is the Fed referred to as the lender of last resort?

What will be an ideal response?

Bigfoot1984 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

C

Answer to Question 2

Sometimes the federal funds market can fail. For example, during a financial panic, banks with excess reserves do not know who they can trust. They don't know which banks are solvent and which banks are not. Accordingly the banks with excess reserves may be unwilling to lend these reserves out. In such a crisis, the Fed can step in and provide reserves to the banks that need them and is hence referred to as the lender of the last resort.