Economic examples V3

| June 14, 2016

Question
1. Suppose that the reserve requirement ratio is 5% and that the Fed uses open market operations by SELLING $100 million worth of Treasury securities. Assume that banks use all funds except required reserves to make loans and that the public does not store any cash.

A. Does this Fed action increase or decrease the money supply (all else equal)? EXPLAIN.

B. Given the information above, what is the best estimate of how much the money supply changes as a result of the Fed’s action?

2. Consider how a university student is likely to react in terms of Consumer Theory in a 3-5 sentences per response..

TYPES of issues to consider/discuss for the different events include the following: What things might they consume more of? What things might they consume less of? Would they work more or less? Would they increase or decrease their saving? NOTE: NOT EVERY CONSIDERATION LISTED HERE APPLIES TO THE EVENTS BELOW.

Answers to each one should be 3-5 sentences.

A. Tuition in the university MBA program is cut 35%.

B. A new business opens nearby the university offering part time jobs at $25 per hour.

3-4. Use the table below

Output

Total Cost

Total Variable Cost

Marginal Cost

Average Total Cost

Average Variable Cost

1

$12.0

$12.0

$12.0

2

20.0

8.0

10.0

3

27.0

4

8.0

5

11.0

8.6

6

63.0

63.0

20.0

10.5

10.5

3.Complete the following:

A. Complete the Total Cost column of the table above.

B. Complete the Total Variable Cost column of the table above.

C. Complete the Marginal Cost column of the table above.

D. Complete the Average Total Cost column of the table above.

E. Complete the Average Variable Cost column of the table above.

4. Using the table above, suppose that the equilibrium price in this competitive industry is $11.00.

A. If you are the owner of the firm whose costs are indicated above, what is your profit maximizing production at this price? _______

B. At this price what is your total revenue? ________

C. At this price, what is your profit? _______

BONUS: Can this be a long-run equilibrium? ____ (yes or no)

EXPLAIN why or why not. You may need to read ahead.

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