Author Question: If MPC = 0.75, a 40 billion decrease in government purchases would have what size effect on the ... (Read 39 times)

kellyjaisingh · **on:** Jun 30, 2018

If MPC = 0.75, a 40 billion decrease in government purchases would have what size effect on the first round of induced added consumption?
a. It would increase first round consumption by 30 billion.
b. It would increase first round consumption by 40 billion.
c. It would increase first round consumption by 120 billion.
d. None of the above; the first round effect would be a decrease in consumption.

Question 2

The money-creating ability of the banking system may be lowered by:
a. a decrease in the cash balances that people wish to hold.
b. a fall in the overall rate of inflation.
c. an increase in the excess reserves.
d. an increase in total deposits.
e. an increase in the reserve requirement.