If the Fed buys 10 million of government securities when the ...

[mspears3]

If the Fed buys 10 million of government securities when the desired reserve ratio is 20 percent and the currency drain ratio is 5 percent, the quantity of money
 
  A) increases by 42 million.
  B) increases by 50 million.
  C) decreases by 42 million.
  D) decreases by 50 million.
  E) increases by 7.5 million.

Question 2

Price discrimination allows a monopoly to increase its economic profit by capturing part of the consumer surplus and turning it into economic profit.
 
   Is the previous statement correct or incorrect? If the statement is correct, why is it important in understanding firms' behaviors? If it is incorrect, why is it incorrect?

[rekilledagain]

Answer to Question 1

A

Answer to Question 2

The statement is correct. The statement is important because it explains why firms want to price discriminate, namely because they can convert some of the consumer surplus into extra economic profit. Hence firms endeavor to price discriminate because if they can do so, they can increase their economic profit.