(Solution)-Suppose "the" multiplier is 3, the money multiplier

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25. Suppose "the" multiplier is 3, the money multiplier is 4 and the income multiplier with respect to the money supply is 5. If the government increases its spending by $10 billion at the same time that the central bank sells $2 billion of bonds on the open market (beyond the bond sales involved in financing the government spending), then incomea) falls by $10b or more b) falls by less than $10bc) increases by $10b or less d) increases by more than $10b26. If the money supply is growing at 8 percent, the real rate of growth of GDP is 2 percent, and financial innovations are reducing the demand for money by 0.5 percent per year, long-run inflation isa) 6% or less b) more than 6% but not more than 7%c) more than 7% but not more than 8% d) more than 8%27. Suppose "the" multiplier is 3.5, the money multiplier is 4.5, the income multiplier with respect to the money supply is 2.5 and the marginal tax rate is 20 percent. What ultimate change in the government's budget deficit would result if government spending increased by $10 billion and at the same time the central bank increased the money supply by $10 billion? 53a) deficit lower by $5b or more b) deficit lower by less than $5bc) deficit higher by $5b or less d) deficit higher by $5b or more

 

Solution ID:10086438 | Question answered on 16-Oct-2016

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