If Individuals Suddenly Increase Their Withdrawals from the Banking System

question 7

Multiple Choice

If individuals suddenly increase their withdrawals from the banking system, the federal funds rate should:

• A)increase as bank reserves decline.
• B)decrease as bank reserves decline.
• C)increase as bank reserves increase.
• D)decrease as bank reserves increase.

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Definitions:

MC = MR

The condition where marginal cost equals marginal revenue, often used as a profit maximization rule for firms.

Industry Supply Curve

A graphical representation that shows the relationship between the price of a good and the total output of the industry for that good.

Shutdown Point

The level of production and price where a company's revenue just covers its variable costs, below which it would be more economical for the firm to cease operations.

Average Variable Cost

The total variable costs of production divided by the quantity of output produced, representing the variable cost per unit of output.