Question

Assume that the mpc is 0.9 and the reserve requirement is 0.2. if the federal reserve needs to decrease aggregate demand by $100 billion at each price level to move the economy back to full employment and the current interest rate is 4%, then the federal reserve should _________ the money supply by ________.

Answer 1

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPC is 0.6, then it would increase government purchases by

$10 billion.

$20 billion.

$31.25 billion.

$40.50 billion.

If the reserve requirement is 20% and commercial bankers decide to hold additional excess reserves equal to 5% of any newly acquired checkable deposits, then the effective monetary multiplier for the banking system will be

3. or

4.or

5.or

6.