26. An increase in the MPC a. increases the multiplier, so that changes in government expenditures...

26. An increase in the MPC

a. increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.

b. increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.

c. decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.

d. decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.

23. If the Fed conducts open-market purchases, the money supply

a. increases and aggregate demand shifts right.

b. increases and aggregate demand shifts left.

c. decreases and aggregate demand shifts right.

d. decreases and aggregate demand shifts left.

e. none of the above

Solutions

Expert Solution

Q26

Option a

Multiplier =1/(1-MPC)

increase in MPC increases the multiplier as MPC is between 0 and 1.

Change in AD=multiplier * change in government spending

so the AD changes more.

============

Q23

Option a

Purchase is a transaction that the Fed gets the bonds and money is in the economy so the money increases, it decreases interest rate which increases consumption and investment spending and shifts the AD to the right.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Suppose the government increases government expenditures in the future period, makes no changes to current taxes,...

Suppose the government increases government expenditures in the future period, makes no changes to current taxes, and will not change its future government expenditures. Use the intertemporal government budget constraint and the intertemporal consumer’s budget constraint to describe the impact on consumers’ lifetime income.

Suppose that the MPC is .80 and taxes increase by 500. Using the simple multiplier, output...

Suppose that the MPC is .80 and taxes increase by 500. Using the simple multiplier, output would change by Group of answer choices -2500 -2000 -1600 -400

The time taken by the multiplier process to act on changes in aggregate expenditures and affect...

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...

Consider the full multiplier model with trade and government. Let’s assume the MPC is .75 and the...

Consider the full multiplier model with trade and government. Let’s assume the MPC is .75 and the initial equilibrium is at $10,000. If Investment Expenditure drops by $500 what happens to equilibrium? What change in government policy would a Keynesian economist recommend in this situation if the initial equilibrium at $10,000 corresponded to full employment? Give a specific $ amount for the necessary change in government spending. Tell me about the logic/process by which an increase in G will cause “multiplier effects”. Describe at...

An increase in the reserve requirement ; a. increases the money multiplier and reduces the money...

An increase in the reserve requirement ; a. increases the money multiplier and reduces the money supply. b. increases the money multiplier and increases the money supply. c. reduces the money multiplier and reduces the money supply. d. none of these. ------------------------------------------------------------------------- Which of the following policies by the Federal Reserve is likely to decrease the money supply? a. Reducing reserve requirements. b. Decreasing the discount rate. c. Selling government bonds. d. None of these. ------------------------------------------------------------ Suppose that a five-year...

(b) Suppose the mpc is 0.75. Assume there is no crowding-out effect. If the government increases...

(b) Suppose the mpc is 0.75. Assume there is no crowding-out effect. If the government increases its expenditures by $300 billion, how much is the total increase in aggregate demand? (c) If crowding out occurs, what happens to your answer in part (b)? Why does this happen? (d) Using the same mpc of 0.75, if the government decreases taxes by $300 billion, instead of increasing government purchases by $300 billion, how much is the total increase in aggregate demand? (e)...

If the economy is at full employment, increases in government spending: A) have a multiplier effect...

If the economy is at full employment, increases in government spending: A) have a multiplier effect on equilib rium output. B) have no effect on the aggregate price level. C) are primarily absorbed by price increases. D) reduce aggregate output

1) A. Determine the impact of an increase in government spending of $9000 when the MPC...

1) A. Determine the impact of an increase in government spending of $9000 when the MPC is .75 ( show your work ) B. Determine the impact of an increase in taxes of $2400 when the MPC is .8 ( show your work ) C. Determine the net impact upon the nation's economy that results from a decrease in spending of $1600 and an increase in taxes os $3000 when the MPC is .9 ( show your work )

If the MPC is .9, and government purchases increase by $6,000, real GDP demanded will:

If the expenditure multiplier is 2.5 and the government spending increases by $4 billion, what would...

If the expenditure multiplier is 2.5 and the government spending increases by $4 billion, what would be the increase in the real GDP? Select one: a. $8 billion b. $6.5 billion c. $1.6 billion d. $10 billion Say’s Law states that supply creates its own demand. In the neoclassical zone on the graph above, supply is at its potential GDP, at full capacity. When aggregate supplies have reached their full potential output, what happens if demand shifts to the right?...

Subjects