Question

Interest Rate MS 4% 3% 2% d Money Demand Quantity of Money At an interest rate of 4 percent, there is an excess Select one: a. supply of money equal to the distance between points a and c. b. demand for money equal to the distance between points a and b. C. demand for money equal to the distance between points b and c. d. supply of money equal to the distance between points a and b. Assume that the multiplier is 6. If there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to Select one: 0 a. increase by $250 billion b. increase by $333 billion. C. increase by $360 billion. 0 d. None of the above are correct. If a $2000 increase in income leads to an $1600 increase in consumption expenditures, then the marginal propensity to consume is Select one: O a. 0.2 and the multiplier is 1.25. b.0.2 and the multiplier is 1.25. c. 0.8 and the multiplier is 3. d. 0.8 and the multiplier is S.

Answer 1

Ans 1: (D) There is excess supply of money at 4% rate which is equal to the distance from point a to b.

Ans 2: (C) Increase by $360 billion. (Change in income = 6 x $60 billion = $360 billion).

Ans 3: MPC = Change in consumption expenditure / change in income

= $1,600 / $2,000 = 0.8 = MPC

Multiplier = 1/(1-MPC) = 1/0.2 = 5

Therefore, option (C) is correct.