Question

Suppose real GDP has increased by $100 million. At the same time, consumption expenditures rose by $90 million. This would imply that the marginal propensity to consume is.... Select one: a. 0.9 b. 0.8 c. 0.75 d. 0.6

If an increase in autonomous consumption spending worth $50 million results in a $400 million increase in equilibrium real GDP, then... Select one: a. the multiplier is 3.5 b. the multiplier is 8 c. the multiplier is 0.125 d. the multiplier is 50

Which of the following statements about required reserve ratios is FALSE? Select one: a. Higher required reserve ratios would increase the quantity of M1. b. If required reserve ratios were lower, banks could lend out more money. c. Setting required reserve ratios is part of monetary policy, not fiscal policy. d. Compared to other monetary policy tools, the Federal Reserve uses this tool less often.

In the money market model, a higher supply of money would cause a new equilibrium with a... Select one: a. lower interest rate and higher quantity of money b. higher interest rate and higher quantity of money c. lower interest rate and lower quantity of money d. higher interest rate and lower quantity of money

In the money market model, which of the following would cause an increase in the supply of money? Select one: a. a higher price level b. open market purchases of Treasury securities c. a higher level of real GDP d. higher discount rates

Answer 1

1. a. 0.9
(MPC = Change in expenditure/Change in real GDP = 90/100 = 0.9)

2. b. the multiplier is 8
(Multiplier = Increase in GDP/Increase in consumption = 400/50 = 8)

3. b. If required reserve ratios were lower, banks could lend out more money.
(As RR is lower, more money can be lent.)

4. a. lower interest rate and higher quantity of money
(Increased money supply cause lower interest rate and high quantity of money.)

5. b. open market purchases of Treasury securities
(Purchase increase money supply.)