A decrease in the tax rate will ________ the disposable income of ...

[craiczarry]

A decrease in the tax rate will ________ the disposable income of households and ________ the size of the multiplier effect.
 
  A) decrease; decrease
  B) decrease; increase
  C) increase; decrease
  D) increase; increase
  E) increase; not change

Question 2

If the required reserve ratio is 100 percent, could the Federal Reserve still change the money supply with open market operations? Explain whether they could or could not.
 
  What will be an ideal response?

[lkoler]

Answer to Question 1

D

Answer to Question 2

The Federal Reserve could still change the money supply, because the initial purchase or sale of government securities would change checking account deposits. For instance, if the Fed purchases a 1,000 government bond from you and you deposit the funds in the bank, then checking account deposits and the money supply would go up 1,000. The simple deposit multiplier with a 100 percent required reserve ratio would equal one, not zero, so an increase in reserves still increases checking account deposits.

[craiczarry]

Thanks for the timely response, appreciate it

[Dominic]

Excellent