Suppose Kaylee withdraws 4,000 from her bank. If the reserve ...

[savannahhooper]

Suppose Kaylee withdraws 4,000 from her bank. If the reserve ratio is 25 percent, then this will lead to a decrease in M1 of
 
  A) 1,000. B) 4,000. C) 8,000. D) 12,000.

Question 2

Differentiate between the adaptive expectations and the rational expectations models of inflation.
 
  What will be an ideal response?

[mammy1697]

Answer to Question 1

D

Answer to Question 2

The adaptive expectations model of inflation states that inflationary expectations are determined by the level of inflation in the recent past. Conversely, the rational expectations model assumes that people have highly sophisticated beliefs about inflation that rationally incorporate all the information available to them.

[savannahhooper]

Correct answers!

[mammy1697]

Great! Please up vote