Question

QUESTION 24

Credit cards were introduced in 1959.  In 2009, the U.S. credit card balance was $866 billion.  Which of the following is true?

No part of the $866 billion balance is counted in M1 and M2.

Only that portion of the $866 billion actually charged in 2009 is counted in M1 and M2.

The $866 billion balance is part of both M1 and M2.

The $866 billion balance is part of M2 but not part of M1.

2.5 points   

QUESTION 25

In February, 2010 the U.S. M1 money multiplier crashed to 0.786.  Each $1 increase in the monetary base resulted in the quantity of money increasing by only $0.79.  Where did the remaining $0.21 disappear?

Banks held part of the $0.21 as excess reserves.

Banks loaned out the $0.21.

Consumers held part of the $0.21 as currency.

Both A and C are correct.

28.   Assuming that there is no government spending or trade an economy's demand is given by its domestic consumption C and investment I, AD = C + I = c0 + c1Y + I. In the economy’s goods market equilibrium this equals its output: AD = Y. Solving for Ythis yields:

Y = [1/(1  -c1 )] (c0+ I)

Given this equation, which of the following statements is correct?

The multiplier is given by 1 – c1

The boost in the economy’s output is not the same, regardless of whether the aggregate demand shock comes from an increase in investment I or in autonomous consumption c0.

The larger the marginal propensity to consume (c1), the smaller the multiplier.

If c1 = 1/3, then a $1 million increase in investment would result in a $1.5 million increase in output.

29.

The aggregate demand of an open economy is given by the after-tax domestic consumption C, the investment I (which depends on the interest rate r), the government spending G and net exports X − M:

AD=?+?+?+?−?=?0+?1(1−?)?+?(?)+?+?−??

c₀ is autonomous consumption, c₁ is the marginal propensity to consume, and m is the marginal propensity to import. In the economy’s equilibrium this equals its output: AD = Y. Solving for Y yields:

?=(11−?1(1−?)+?)(?0+?(?)+?+?)

Given this equation, which of the following increases the multiplier?

c₀ is autonomous consumption, c₁ is the marginal propensity to consume, and m is the marginal propensity to import. In the economy’s equilibrium this equals its output: AD = Y. Solving for Y yields

** A fall in marginal propensity to import.

A fall in government spending.

A rise in the tax rate.

A fall in the interest rate

.............

Answer 1

1) Solution: No part of the $866 billion balance is counted in M1 and M2

Explanation: The amount of credit card will not be counted in M1 and M2

2) Solution: Both A and C are correct

Explanation: Banks held part of the​ $0.21 ( = 1 -0.79) as excess reserves; and consumers held remaining part i.e. $0.21 as currency

3) Solution: If c1 = 1/3, then a $1 million increase in investment would result in a $1.5 million increase in output

Explanation: An increase of $1 million in investment would lead to a $1.5 million increase in output

4) Solution: A fall in marginal propensity to import.

Explanation: Decine in marginal propensity to import will increases the multiplier

answered by: anonymous