Category: Economics

a. The Federal Reserve requires commercial banks to have reserves becausereserves are needed for banks to earn money.reserves provide the Fed a means of controlling the money supply.reserves are a claim that commercial banks have against the Federal Reserve Banks.this is the way the Fed monitors bank solvency.
b. Reserves are an asset to commercial banks but a liability to the Federal Reserve Banks becausthese funds are cash belonging to the Federal Reserve Banks, but they are a claim that th against commercial banks.they must be equal to determine net worth.commercial banks and the Federal Reserve Banks do not use the same accounting systerthese funds are cash belonging to commercial banks, but they are a claim that commercia Reserve Banks.
c. Excess reserves are equal toactual reserves required reserves.total reserves – total deposits.actual reserves – required reserves.required reserves – actual reserves.
d. Excess reserves

Answer whether the statements are True or False statements.(10 points) Provide 1-2 sentences explaining your choice.
i. Perfect price discrimination is the ability to charge different buyers theirentire willingness to pay for goods with identical production costs.
Answer:
True. Perfect (first-degree) price discrimination involves charging each buyer their exact willingness to pay, capturing all consumer surplus; identical production costs do not prevent this pricing practice.
ii. Price discrimination is a method of manufacturing to cut costs
Answer:
False. Price discrimination is a pricing strategy used to extract more consumer surplus, not a manufacturing method aimed at reducing production costs.
iii. Negotiating for a better price on a used car is an example of a third degreeprice discrimination.
Answer:
False. Individual negotiation is personalized bargaining (closer to individualized or first-degree pricing), whereas third-degree price discrimination segments markets by identifiable groups with different elasticities.
iv. Perfect price discriminating monopolist produces the same quantity as aperfectly competitive firm with the same costs.
Answer:
True. A perfect price-discriminating (first-degree) monopolist sells units up to the point where price equals marginal cost for each unit, resulting in the socially efficient output equal to the competitive quantity.
v. Advertising and marketing are the same thing.
Answer:
False. Marketing is a broad set of activities including product development, pricing, distribution, and promotion, while advertising is just one component of promotion within marketing.
vi. Increase in transportation cost will increase the retail price and lower thefarm price.
Answer:
True. Higher transportation costs raise the marketing margin and typically increase retail prices while reducing the net price received by producers (farm price) after transport deductions.
vii. Marketing margin is revenue minus expenditures.
Answer:
False. Marketing margin usually refers to the difference between the consumer (retail) price and the producer (farm) price, not a simple accounting of revenue minus expenditures.
viii. Transportation cost is a derived demand shifter.
Answer:
False. Derived demand refers to demand for an input driven by demand for final goods; transportation cost itself is a cost factor and more properly affects margins rather than being classified as a derived demand shifter.
ix. Derived demand is the demand that derived from income, tastes, etc. ofsellers.
Answer:
False. Derived demand is demand for an input that arises from demand for the final product by consumers, not demand driven by sellers’ income or tastes.
3x. Marketing agreements and orders are initiated by industry to help providestable markets
Answer:
True. Marketing agreements and orders (especially in agriculture) are industry-initiated mechanisms intended to stabilize markets, coordinate supply, and support prices.

III. [Q13-Q16]
Go back to [BOX 1], and add two extra assumptions: The consumption function: C = 0.75(Y-T) [M/P 1], 0. Emunistan is currently in the liquidity trap, so the current IS curve intersectwith the flat portion of the LM curve. Answer the following Qs with reference to [FIGURE 3] below.
[FIGURE 3]
[Q13-Q14] Suppose that is 0.13.
[True/False] The fall in the price level from P0 to P1 fails to increase theaggregate purchase.
14. [True/False] Therefore, the AD curve is vertical passing through the two points 0 and A.
[Q15-Q17] Suppose that > 0.15.
[True/False] The fall in the price level from P0 to P1 shifts the IS curve out.
16. [True/False] Passing through the two points 0 and B, the AD curve becomes flatter (than with = 0).
17. If =5, what is the (common) value of Y in the boxes?
[FIGURE 3] Republic of Emunistan has the following features in [BOX 1] below:
[BOX 1] It is at the initial LR eq’m with ( P0,Y0,r0,M0 ), where

Manitoba resident Matthew asked his life insurance agent how to make a lump sum contribution to his universal life insurance policy that he had purchased through her. She advised him to provide her with a cheque made out to the insurer and that she would take care of it. While Matthew’s bank account balance revealed that the cheque had been cashed, his next life insurance statement did not reflect the contribution and the insurer did not receive the cheque. What steps can Matthew take to recover his money?
Matthew can file a complaint with CISRO, which deals with market conduct issues, and FARTRAC to stop the payment transaction.
Matthew can file a complaint with CCIR, which deals with market conduct issues, and return to the agent.
Matthew can file a complaint with OSFI, which deals with market conduct issues and helps recover money.
Matthew can file a complaint with the Insurance Council of Manitoba, which deals with market conduct issues and can help recover money.
Choose 1 option.

Consider the only electric company in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand curve for electricity services per month, as well as the provider’s marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits.
Complete the first row of the following table.
Quantity (Subscriptions)
Price (Dollars per subscription)
Suppose now that the government decides to require the monopolist to set its price equal to marginal cost. Complete the second row of the previous table.
Suppose now that the government decides to require the monopolist to set its price equal to average total cost. Complete the third row of the previous table.
True or False: Under the average-cost pricing policy, the electric company has no incentive to cut costs.
True
False