The marginal propensity to consume is 0.50, marginal propensity to invest is 0.20, and the marginal propensity to import is 0.05. What is the size of the multiplier?
A) 1.00
B) 2.86
C) 3.00
D) 0.50
B
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How can a new deposit of $10,000 at one bank create other new deposits at other banks? Suppose the desired reserve ratio is 10 percent and people keep no currency outside of the banks
What will be the new amount of deposits in the second and third rounds?
Suppose a family is holding $1000 in its checking account for normal transactions, $500 in cash for emergencies, and $1500 as a store of value when the interest rate is 4 percent
If the interest rate rises to 10 percent, which of the following patterns of holding money would be most likely and why? A) Transactions demand—$1000; Precautionary demand—$350; Asset demand—$500, because the opportunity cost of holding money has increased. The reduction money balances held as an asset is greatest because interest-bearing assets are much more attractive when interest rates are higher. B) Transactions demand—$500; Precautionary demand—$500; Asset demand—$1400, because the opportunity cost of holding money balances has risen. The reduction in money balances held for transaction purposes falls the most because people start using credit cards more when the opportunity cost of holding money increases. C) Transactions demand—$1000; Precautionary demand—$500; Asset demand—$500, because only the asset demand is responsive to changes in the interest rate. D) Transactions demand—$800; Precautionary demand—$600; Asset demand—$1500, because people can economize on their money balances for making transactions, but the possibility of an emergency increases with the interest rate. People will also expect rates to go higher, so they will hold money as an asset until the rates increase further.
If the time for an economy to self-correct is shorter than the active policy lags, then:
a. active policy should be strengthened b. active policy is likely to destabilize the economy. c. time is required to accumulate evidence that the economy is performing below its potential. d. the aggregate demand curve shifts more rapidly than the short-run aggregate supply curve. e. active policy will work better than passive policy.
Production for war and environmental clean-up services are not included in GDP
a. True b. False Indicate whether the statement is true or false