A bank's required reserves are either held as vault cash or: a. ...

[nmorano1]

A bank's required reserves are either held as vault cash or:
 a. used to purchase Treasury bonds.
  b. deposited with the Fed.
  c. invested in the stock market.
  d. loaned out to other commercial banks.

Question 2

If actual real GDP is greater than the equilibrium level of real GDP (i.e., the aggregate expenditures function is below the 45-degree line), what happens to restore equilibrium to the economy?

[Dominic]

Answer to Question 1

b

Answer to Question 2

At the current level of real GDP, aggregate spending (C + I + G + NX) is less than aggregate supply. The amount of goods and services produced is greater than the amount people intend to buy. Inventories rise above the levels firms desire to hold. These unintended inventory increases are a signal to firms to reduce production. Production will continue to fall until the amount firms produce just equals aggregate expenditures.

[nmorano1]

Correct answers!

[Dominic]

Great! Please up vote