An increase in the currency drain A) leads to an increase in ...

[Ebrown]

An increase in the currency drain
 
  A) leads to an increase in excess reserves.
  B) decreases the size of the money multiplier.
  C) results in an increase in deposits.
  D) results in an increase in required reserves.

Question 2

What is the main shortcoming of the neoclassical growth model and how does the new growth theory address this shortcoming?
 
  What will be an ideal response?

[livaneabi]

Answer to Question 1

B

Answer to Question 2

One difficulty with the neoclassical model is that it predicts all nations will converge to the same level of per capita income. The new growth theory is based on the idea that technological change results from the choices that people make in the pursuit of profit. So if people in different nations face different incentives to innovate, technological progress and hence economic growth can differ among nations.