What is the money multiplier? What are the factors that can affect the size of the money multiplier?
The money multiplier shows how much the total supply of money in the economy would be altered if the original quantity of reserves was increased or decreased by $1.The formula to calculate the money multiplier is 1/reserve ratio, where the reserve ratio represents the proportion of deposits that a bank wishes to hold in reserves.
The following factors may affect the size of money multiplier:
The value of the money multiplier will depend on the proportion of reserves that banks hold. The higher the percentage of deposits held by banks as reserves, the lower will be the value of the money multiplier.
The money multiplier also depends on people re-depositing into the banking system the money that they receive. If people instead store their cash in safe-deposit boxes or in shoeboxes hidden in their closets, then banks cannot recirculate the money in the form of loans.
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The Federal Reserve econometric model estimates that it takes __________ for crowding out to reduce the impact of a 1 percent increase in government spending, with the money supply held constant, to zero
A) 2 years B) 3 years C) 4 years D) Crowding out never reduces the impact to zero.
"A drop in the money supply lowered output in the short run, but left output unaffected in the long run." This statement implies that the price level __________ in the long run, causing the interest rate to __________
A) rose; rise B) rose; fall C) fell; rise D) fell; fall
A trade-off between aggregate output and inflation
A) is theoretically possible, but has never been observed in practice. B) may exist in the short run, but not in the long run. C) may exist in the long run, but not in the short run. D) exists in both the short run and the long run.
Given a perfectly competitive market structure at the profit-maximizing output level, a firm's total fixed cost is $15, total variable cost is $137, marginal revenue is $4, and the quantity demanded is 65 . The total profit earned by the firm is $108
a. True b. False Indicate whether the statement is true or false