What is a multiplier? How does the multiplier effect occur?
What will be an ideal response?
The multiplier is the ratio of the change in equilibrium GDP (Y) divided by the original change in spending that causes the change in GDP.The multiplier effect occurs because one person’s additional expenditure constitutes a new source of income for another person, and this additional income leads to still more spending, and so on.
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Assume that the reserve requirement for the commercial banks is 25%. If the Federal Reserve Banks buy $3 billion in government securities, the lending ability of the commercial banking system will increase by ________.
A. $12 billion B. $15 billion C. $9 billion D. $4.5 billion
The main source of profit for financial institutions is: a. their ownership of stocks in commercial corporations
b. their ownership of real assets received in foreclosures on loans to households. c. the fees charged for holding and servicing checking accounts. d. the difference between interest paid on deposits and interest received on loans. e. the difference between the cost of creating new money and the interest paid on loans.
The Keynesian-cross model is a complete macroeconomic model
a. True b. False Indicate whether the statement is true or false
Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tracy 6 minutes to make a sandwich and 12 minutes to make a smoothie. Which of the following statements is correct?
A. Dan should specialize in sandwiches, and Tracy should specialize in smoothies. B. Dan should specialize in both sandwiches and smoothies. C. Dan should specialize in smoothies, and Tracy should specialize in sandwiches. D. Tracy should specialize in sandwiches and smoothies.