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What change in the equilibrium level of income would result if government 



1. Suppose the income multiplier with respect to government spending is 3.5, the money multiplier is 4.5 and the income multiplier with respect to the money supply is 2.5. What change in the equilibrium level of income would result if government spending were reduced by $1000 and at the same time the central bank purchased bonds worth $2000? 
a) less than or equal to $5000 b) between $5000 and $10,000 
c) between $10,000 and $20,000 d) more than $20,000 
2. Suppose "the" multiplier is 4, the income multiplier with respect to the money supply is 3, and the money multiplier is 5. If the government increases its spending by $6b and the Fed sells $2b of bonds, the income level will 
a) fall b) rise by less than or equal to $15b 
c) rise by between $15b and $35b d) rise by $35b or more. 
3. If banks desire to hold reserves equal to 4% of their deposits, and velocity is 5, then the largest the money multiplier could be is 
a) 4 b) 5 c) 20 d) 25 
Consider an economy in which the real level of income is 500b 1992 dollars, "the" multiplier is 4, the money multiplier is 5, the income multiplier with respect to the money supply is 3, the price index is 120 (base year 1992), the current money supply is $200b, inflation is 5%, and velocity is constant. 
4. Velocity is 
a) less than 2.5 b) 2.5 c) 3.0 d) greater than 3.0 54 
5. Ignoring inflation, the change in nominal income resulting from a central bank purchase of $3b bonds is 
a) less than $10b b) between $10b and $25b 
c) between $25b and $50b d) over $50b 
6. Next year, the price index should be 
a) 120 b) between 120 and 125 c) 125 d) greater than 125



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