Question

In: Economics

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

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.

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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 2 years ago

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