Command-and-control regulation, as compared to incentive-based regulation, is:
a. efficient in the short run and in the long run.
b. efficient in the short run, but not in the long run.
c. inefficient in the short run, but efficient in the long run.
d. inefficient in the short run and long run.
QUESTION 2In the federal funds market, _____.
a. banks make loans to the Fed
b. banks make short-term loans to other banks
c. banks make long-term loans to other banks
d. the Fed makes short-term loans to private borrowers
e. the Fed makes long-term loans to commercial banks
QUESTION 3On a graph showing investment along the vertical axis and income along the horizontal axis, _____.
a. the investment line will be downward sloping
b. the investment line will be upward sloping
c. the investment line will be horizontal
d. the investment line will be vertical
e. the investment line will be U-shaped
QUESTION 4Which of the following provides an example of command-and-control regulation?
a. Taxing producers based on the external costs created by their pollution, thus internalizing external costs.
b. Requiring firms to reduce their pollution by 50 percent, thus allowing them to emit 50 percent of their historical emissions, and allowing them to freely buy and sell allowances.
c. Requiring firms to use a particular type of pollution-control technology, such as smokestack scrubbers or catalytic converters.
d. Subsidizing firms that exceed their pollution-control targets.
QUESTION 5To maximize its profit, a bank will:
a. minimize the number transactions it engages in.
b. maximize required reserves.
c. minimize excess reserves.
d. maximize excess reserves.
e. minimize required reserves.
QUESTION 6Less of an economy's resources will be channeled into building new factories and equipment when:
a. interest rates are high.
b. households decide to save more of their income.
c. firms are optimistic about their future profits.
d. aggregate income increases.
e. an economy has a trade deficit.
QUESTION 7From an economic viewpoint, the optimal amount of pollution:
a. is zero since all pollution imposes costs on society.
b. is that amount which firms create when they maximize economic profits by setting their marginal private costs equal to market price.
c. is that amount where the marginal social costs of producing a good precisely equals the price of the good.
d. b and c are correct.
QUESTION 8A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is:
a. zero.
b. the prime rate.
c. the discount rate.
d. the federal funds rate.
e. the required reserve ratio.
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