Author Question: The preferred asset ratio U/D affects the M2 money multiplier because: a. Actually, it is does not ... (Read 44 times)

lb_gilbert · **on:** Jun 30, 2018

The preferred asset ratio U/D affects the M2 money multiplier because:
a. Actually, it is does not affect the M2 money multiplier because customary reserves are not a part of M2.
b. Funds kept in customary reserves reduce financial institution's ability to lend.
c. U/D affects the required reserves financial institutions must hold and thereby affects the banking system's lending ability.
d. U/D determines the funds flowing into near-money accounts.
e. None of the above.

Question 2

Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the GDP Price Index and net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?
a. The GDP Price Index rises, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
b. The GDP Price Index rises, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
c. The GDP Price Index falls, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
d. The GDP Price Index and net nonreserve-related international borrowing/lending remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.