Suppose the Current Level of Output Is 5000 and the Elasticity

question 14

Multiple Choice

Suppose the current level of output is 5000 and the elasticity of output with respect to capital is 0.4.A 10% increase in capital would increase the current level of output to

• A)5020.
• B)5050.
• C)5200.
• D)5500.

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Definitions:

Federal Funds Rate

The interest rate at which depository institutions lend reserve balances to other depository institutions overnight on an uncollateralized basis.

Reserve Requirement

The portion of depositors' balances that banks must have on hand as cash or in deposits with the central bank, used as a tool for monetary policy.

Bank Runs

A situation where a large number of a bank's depositors try to withdraw their funds simultaneously over concerns about the bank's solvency.

Reserve Banking

A banking system in which banks hold a fraction of their deposits in reserve, while lending out the remainder to generate profits.