Question

1. Between 2017 and 2018, the unemployment rate in Argentina rose to 12.2% while inflation fell to 1.3%.  The natural rate of unemployment in Argentina is approximately 11%.

This change was most likely caused by a shift in the _____ curve. Argentina was most likely in _____ gap in 2018.

		short-run aggregate supply; an expansionary
		short-run aggregate supply; a recessionary
		aggregate demand; a recessionary
		aggregate demand; an inflationary

2. In January of 2019, the size of the money supply in Argentina was $390 billion and the size of the monetary base was $180 billion.  What was the ACTUAL size of the money multiplier?

3. The Argentina's bank has set the required reserve ratio at 12% of deposits.  What is the MAXIMUM increase in money supply that would result from 1 additional dollar of deposits?

Answer 1

1.

Since, the actual unemployment rate > the natural rate of unemployment, the change would most likely caused by the leftward shifts in the Aggregate Demand. Now, at new equilibrium, the actual output falls below the potential level of output and hence, the economy is in recessionary gap.

So, Aggregate Demand; a recessionary is the correct option

2.

Money Supply = $390 billion

MB = $180 bn

Change in Money Supply = m * Change in MB

m = 390 / 180

m = 2.17 : money multiplier

3.

Multiplier = 1/rr = 1 / 0.12 = 8.33

Maximum increase in money supply that would result from 1 additional dollar of deposits = 8.33 * 1

= $8.33

So, if deposits increase by $1 then money supply increases by $8.33

**if you liked the answer, then please upvote. Would be motivating for me. Thanks