Question

D Question 41 By law, banks are allowed to lend an amount equal to their Oloanable funds deposits required reserves O excess reserves ols • Previous 9 30 . 20 GOD F4 F3 A & a # 3 $ 4 % 5 8 r 2

Answer 1

41) Deposits. Banks are allowed to spend the amount which is equal to its deposits. Every bank should keep a minimum amount of money keep as reserves. This can be used for unprecedented needs of the banks. The most important functions of banks are lending money and accept deposits. Banks keep these reserves for loans of business firms.

42)

• Joe takes a week off from his job to care of his grandmother is an example of implicit cost. Implicit cost is mainly opportunity cost and explicit cost is the expenses paid a company’s tangible assets.
• Nancy quit her job and goes back to school is implicit cost
• Fred buys car insurance is explicit cost which creates an additional expense over the company.
• Brenda pays her apartment even though she is living at home with her parents during COVID 19 pandemic is an example for explicit cost.  

43) On average, the price fell between last year and this year. The inflation rate shows the increase in general price level over a period of time. Rise in the cost of production like increasing wage rates and rent will leads to huge rise in price level. If the prices increased at high rate, the value of currency falls down.

44) Budget deficit. This occurred when there is higher government spending than its revenue. In simple words, the expenditure exceeds the revenue.