Author Question: If the government decides to spend an extra 5 billion on fighter jets that they would otherwise have ... (Read 21 times)

naturalchemist · **on:** Jun 30, 2018

If the government decides to spend an extra 5 billion on fighter jets that they would otherwise have spent on road construction, and the MPC = 0.75, what is the effect on AD?
a. It has no effect.
b. It increases by 5 billion.
c. It increases by 15 billion.
d. It increases by 20 billion.

Question 2

Suppose a bank has demand deposits of 2,500, excess reserves of 125, and a reserve requirement of 25 percent. What is the loss in the money expansion process of the whole banking system if the bank decides to lend out only 100?
a. 100
b. 150
c. 200
d. 400
e. 500