Question

In: Economics

Answer the following questions either true, false, explain your answer. The explanation is the most important...

Answer the following questions either true, false, explain your answer. The explanation is the most important part of your answer.

An increase in the money supply will shift the AD curve upwards and to the right.
The larger the MPC, the smaller the Keynesian government spending multiplier.
Contractionary monetary policy shifts the AD curve to the right.
Structural unemployment is caused by fluctuations in economic activity.
Nominal GDP can be equal to real GDP.
If the reserve ratio 0.1, the money multiplier is equal to 5

Expert Solution

An increase in the money supply will shift the AD curve upwards and to the right.

A rise in the money supply increases the purchasing power of the general public. People will start spending their increased income on goods and services. Eventually, the demand for goods rise and the AD curve shifts to the right showing increase in the price and output.

So, statement is TRUE

The larger the MPC, the smaller the Keynesian government spending multiplier

Government Spending Multiplier = 1 / 1 - MPC

Higher MPC reduces the denominator and increases the overall value. Higher MPC makes the Government Spending Multiplier larger.

So, statement is FALSE

Contractionary monetary policy shifts the AD curve to the right.

Such policy reduces the flow of money into the economy. It reduces the purchasing power of the consumers. People, therefore, reduce the demand for goods. So, the AD curve shifts to left.

Statement is FALSE.

Structural unemployment is caused by fluctuations in economic activity

Structural unemployment is caused by economic activities like de-industrialization. Such activities create a mis-match in the skills of the workforce and leads to Structural unemployment.

Statement is TRUE

Nominal GDP can be equal to real GDP

It can true when both are equal to each other and there is no inflation in the economy. In that case, GDP Deflator comes out to be equal to 1.

So, statement is TRUE

If the reserve ratio 0.1, the money multiplier is equal to 5

Multiplier = 1 / reserve ratio

= 1 /0.1

= 10

So, statement is FALSE

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Rahul Sunny answered 2 years ago

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