Q1. a. Distinguish between monetary policy instruments and monetary policy tools.
b. Describe any two key tools of monetary policy, and describe how they would be used to implement expansionary monetary policy.
Q2. Suppose that two firms compete in quantities (cournot) in a market in which demand is described by: P=260 -2Q. Each firm incurs no fixed cost but has a marginal cost of 20.
a. What is the one-period Nash equilibrium market price? What is the output and profit of each firm in this equilibrium?
b. What is the output of each firm if they collude to produce the monopoly output? What profit does each firm earn with such collusion?