Question

Question 6 Not yet answered Interest Rate MS Marked out of 2.00 4% b P Flag question 3% d 2% Money Demand Quantity of Money At an interest rate of 4 percent, there is an excess Select one: O a demand for money equal to the distance between points a and b. O b. supply of money equal to the distance between points a and b. O C. supply of money equal to the distance between points a and c. O d demand for money equal to the distance between points b and c. Question 7 An increase in the marginal propensity to consume Not yet answered Marked out of 2.00 P Flag question Select one: a decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. b. increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. C. increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. O d. decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. 0

Answer 1

6. The correct answer is b. Supply of money equal to the distance between point a and b.

Because when interest rate is 4 % the supply for money is at point b and the Demand for money is at point a. The the excess supply of money is the distance between point a and b.

7. The correct answer is c. Increase in Multiplier so that change in government expenditure have larger effect on aggregate Demand.

Because we know Multiplier(k) = 1/1-MPC

this above equation show that there is direct relation between MPC and multiplier, which means higher the MPC higher the Multiplier and vice versa.

For example if MPC = 0.8 than

multiplier = 1/1-0.8 = 1/0.2 = 5

Now if MPC = 0.9 than multiplier = 1/1-0.9 = 1/0.1 = 10

So we can clearly notice in above example as MPC increases the Multiplier also increases