Fed conducted purchases in open market

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Reference no: EM138198

Q1. The supply is Nerf balls Qs = -100,000 + 8,000p and the demand is Qd = 140,000 + 2Y - 7000p, where Q = Nerf balls per month, p is the price (in cents) of one Nerf ball, and Y is income in dollars. Initially, Y is $30,000. The government imposes a tax of 10 cents per Nerf ball. What percent of the tax is borne by buyers? If income rises to $40,000, how much will tax revenue rise?

Q2. Suppose you read in the newspaper that all last week the Fed conducted purchases in open market, and that on Tuesday of last week it lowered the discount rate. Illustrate what would you say the Fed was up to?

Reference no: EM138198

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