Question

Suppose Will gives his wallet containing $100 to Alex to hold while he works out. During Will’s workout, Alex uses the $100 to pay his mechanic who fixed his scooter. The mechanic then took this $100 to his vet to pay off his account for rescuing his pet bird. The vet then used the $100 to pay Alex for money she owed him for tutoring her in economics. After Will’s workout, Alex returns the wallet with the same $100 bill inside. Although the same $100 bill was used without Will’s knowledge, everybody’s debt has been settled. How much money was created?

Answer 1

Answer:please refer to the explanation section

Explanation:

Mechanic = $100

Vet = $100

Alex (payment from vet) = $100

Will's $100 bill has created $300.

This situation is explained in detail by the concept known has the multiplier. The multiplier measures how much impact will a change in an exogenous variable will cause in endogenous variables, for example How much a increase in Government spending will change Gross Domestic Product.

The multiplier in this case is 3,