Question

The time taken by the multiplier process to act on changes in aggregate expenditures and affect the economy is part of the

	a.	effectiveness lag.
	b.	recognition lag.
	c.	transmission lag.
	d.	decision making lag.

Suppose a bank has $500,000 in deposits, a required reserve ratio of 20%, and reserves of $125,000. Then this bank has excess reserves of

	a.	$375,000.
	b.	$125,000.
	c.	$100,000.
	d.	$25,000.

An expansionary monetary policy ____ the money supply, causing the real interest rate to ___ and planned investment to ___

	a.	increases, increase, increase.
	b.	increases, increase, decrease.
	c.	decreases, increase, decrease.
	d.	increases, decrease, increase.

If the economy turns down and as a result more people become unemployed and receive unemployment compensation, this is an example of

	a.	discretionary expansionary fiscal policy.
	b.	automatic expansionary fiscal policy.
	c.	discretionary contractionary fiscal policy.
	d.	automatic contractionary fiscal policy.

Answer 1

1.Option A

Effectiveness Lag

Effectiveness lag is the amount of time it takes for a fiscal or monetary policy's effects to produce the desired result. Once a problem is recognized and a policy is created, it must be implemented. After that, it still takes a certain amount of time for it to work. That's the effectiveness lag.The effectiveness of multiplier on economy will take time to produce desired results.

2. Option C

Total Reserves $125000

Reserve ratio 20%

Reserves Required = $25000

Excess Reserves = $125000 - $25000 = $100000

3. Option D

increases, decrease, increase.

Expansionary monetary policy is when a central bank uses its tools to stimulate the economy. That increases the money supply, lowers interest rates, and increases aggregate demand and increases investment.

4.Option B

Automatic Expansionary Fiscal Policy

Automatic stabilizers are a type of passive fiscal policy. For example, as the economy slows, the government collects less in taxes and tends to spend more on transfer payments, such as unemployment compensation and food stamps. So, tax revenue declines and government spending increases.