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Author Question: In equilibrium, what determines the price of capital and what determines the price of natural ... (Read 79 times)

Medesa

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on: Jun 29, 2018
In equilibrium, what determines the price of capital and what determines the price of natural resources?
 
  What will be an ideal response?

Question 2

What actions should the Fed take if it believes the economy is about to fall into recession?
 
  What will be an ideal response?
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emily12345

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Reply #1 on: Jun 29, 2018
Answer to Question 1

In equilibrium, the price of capital is determined by the intersection of the supply of capital curve and the demand for capital curve. Similarly, the equilibrium price of natural resources is determined by the intersection of the supply of natural resources curve and the demand for natural resources curve.

Answer to Question 2

If the Fed believes the economy is about to fall into recession, it should conduct expansionary monetary policy, increasing the money supply and reducing interest rates. In implementing expansionary monetary policy, the Fed could lower the discount rate, lower the reserve requirement, and/or have the trading desk purchase U.S. Treasury securities.


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