Author Question: A duopolist faces the entire market demand for its product if ________. A) it charges a lower ... (Read 70 times)

Evvie72 · **on:** Jun 29, 2018

A duopolist faces the entire market demand for its product if ________.

A) it charges a lower price than its rival
B) it charges a higher price than its rival
C) it charges the same price as its rival
D) it charges a price higher than its cost of production

Question 2

Suppose the Fed conducts an open market operation in which it buys government securities from a commercial bank. Why is there a multiplier effect on the quantity of money?

What will be an ideal response?

InfiniteSteez · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A

Answer to Question 2

When the Fed buys government securities from a bank, the payment to the bank is in the form of reserves. Hence the bank gains excess reserves. The bank can loan these excess reserves. When the loan is spent, the recipients deposit some or all of the funds in their banks. These banks gain deposits (which increase the quantity of money) as well as excess reserves. The second round banks then loan their excess reserves. And when these loans are spent, once again the recipients deposit some or all of the funds in their banks. These third-round banks thereby gain deposits (which further increases the quantity of money) as well as excess reserves. These reserves are loaned, spent, and then deposited in a fourth round of banks, which still further increases the quantity of money. Hence the process of loaning and depositing the proceeds increases the quantity of money by a multiple of the initial amount of the open market operation.