Question Details

What monetary policy is required to accomplish this 



1. If the money supply is growing at 8 percent, the real rate of growth of GDP is 2 percent, and financial innovations are reducing the demand for money by 0.5 percent per year, long-run inflation is 
a) 6% or less b) more than 6% but not more than 7% 
c) more than 7% but not more than 8% d) more than 8% 
2. Suppose "the" multiplier is 3.5, the money multiplier is 4.5, the income multiplier with respect to the money supply is 2.5 and the marginal tax rate is 20 percent. What ultimate change in the government's budget deficit would result if government spending increased by $10 billion and at the same time the central bank increased the money supply by $10 billion? 53 
a) deficit lower by $5b or more b) deficit lower by less than $5b 
c) deficit higher by $5b or less d) deficit higher by $5b or more 
3. If "the" multiplier is 6, the income multiplier with respect to the money supply is 4, and the money multiplier is 5, then which of the following policies does not increase income by $50 billion dollars? 
a) increase government spending by $3 billion and the money supply by $8 billion 
b) Fed sale of $2 billion bonds and increase government spending by $15 billion 
c) Fed purchase of $1 billion bonds and increase government spending by $5 billion. 
d) Fed purchase of $16 billion bonds and decrease government spending by $5 billion. 
4. Suppose "the" multiplier is 4, the income multiplier with respect to the money supply is 2, the money multiplier is 6, and the government is obliged by an election promise to increase government spending by $5 billion, but wants the level of income to grow by only $8 billion to avoid inflation. What monetary policy is required to accomplish this ? 
a) buy $1b bonds b) sell $1b bonds c) buy $2b bonds d) sell $2b bonds 
5. If the income multiplier with respect to the money supply is 3, "the" multiplier is 4 and the money multiplier is 5, then when the central bank buys two billion dollars of bonds on the open market, the income level should ultimately increase by 
a) $6b b) $8b c) $10b d) $30




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