Question

17.

The government implements monetary policy and fiscal policy in order to:

a. offset the shifts in aggregate demand and thereby eliminate unemployment.

b. offset shifts in aggregate demand and thereby stabilize the economy.

c. enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.

d. enhance the shifts in aggregate demand and thereby increase economic growth

20.

Which of the following is a way the Fed can change the money supply?

a. changing how much it lends to banks.

b. changing the interest rate it pays banks on the reserves they are holding.

c. using open-market operations.

d. All of the above are correct.

23.

If the multiplier is 10, then the MPC is

0.16.

0.9.

0.10.

0.86.

Answer 1

17) the aim of fiscal policy and monetary policy economic stability and not economic growth. Changes in fiscal policy and monetary policy are brought about in order to maintain price stability and full employment and to handle any shock to the economy. Select option B

20) option D is correct. These are basically the tools of monetary policy and the are used in order to change the money supply. for example in the open market government securities are bought and sold in order to influence the amount of reserves in the banking system

21) 0.9. when marginal propensity to consume is 0.9 then marginal propensity to save will be 1 - 0.9 which is 0.1. multiplier is 1 / MPS so multiplier will be 1/ 0.1 or 10.