An Externality Exists Whenever

question 370

Multiple Choice

An externality exists whenever

• A)the economy cannot benefit from government intervention.
• B)markets are not able to reach equilibrium.
• C)a firm sells its product in a foreign market.
• D)Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence.

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Definitions:

Reserve Requirement Ratio

The fraction of deposits that banks are required to keep on hand, either in cash or as deposits at a central bank, as a measure to ensure bank liquidity.

Required Reserves

The minimum amount of funds that a bank must hold in reserve against deposits, as mandated by regulatory authorities.

Total Checkable Deposits

represents the sum of all demand deposits and negotiable order of withdrawal (NOW) accounts in the banking system, which are available for immediate withdrawal and payment.

Depository Institutions Deregulation and Monetary Control Act

A United States federal law enacted in 1980 aimed at improving the efficiency of the financial institutions system and enhancing the control of the money supply.