A Headline Reads, "Lumber Prices Up Sharply

question 335

Multiple Choice

A headline reads, "Lumber Prices Up Sharply." In a competitive market, this situation would lead to a(n)

• A) increase in the price and quantity of new homes.
• B) decrease in the price and quantity of new homes.
• C) increase in the price of new homes and decrease in quantity.
• D) decrease in the price of new homes and increase in quantity.

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Definitions:

Reserve Requirements

The fraction of deposits that banks are required by law to keep on hand or with the central bank as a safeguard against bank runs.

Money Multiplier

A factor that quantifies the amount of money that banks generate with each unit of reserves.

Reserve Ratio

The fraction of deposits that banks are required to keep on hand as reserves, aimed at ensuring liquidity and controlling the money supply.

Discount Rate

The interest rate charged by central banks on loans they offer to commercial banks or the rate used in discounted cash flow analysis to determine the present value of future cash flows.