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points eBook References Ifthe marginal propensity to save (MP8) is 0.07. Instructions: Round your responses to two decimal places. a. the marginal propensity to consume (MP0) is b. the multiplier is :I :I 2 points eEook Ask E Print [6 References Suppose consumers' disposable income increased by $350 billion and their spending increased by $325 billion. What was the MPC? Instructions: Round your response to two decimal places. MPC=|: Week 8: Homework 0 Saved Help Save 3. Exit Submit 3 Points Instructions: Round your response to one decimal place. Suppose the government increases education spending by $30 billion. If the marginal propensity to consume is 0.90, how much will total spending increase? El $ :| billion eank Week 8: Homework 0 Saved Given the following data, answer four questions about the money supply and the money multiplier. 10 points Value Total reserves: $75 billion El Transactions deposits: $1.000 billion eBgok Cash held by public: $500 billion Bonds held by public: $700 billion , Stocks held by public: $195 billion Ask Gross domestic product: $8 trillion Interest rate: 4 pecent 6 Required reserve ratio: 0.07 Print RefEices a. How large is the money supply (M1)? E billion b. How much excess reserves are there? E billion Instructions: Round your response to two decimal places. c. What is the money multiplier? E d. What is the available lending capacity of the banking system? S billion Week 8: Homework 0 Saved Help Assume that the following data describe the current condition ofthe commercial banking system: 10 points Value Total reserves: $60 billion El Transactions deposits: $400 billion 95;\" Cash held by public: $350 billion Required reserve ratio: 0.10 Ask E! Print References billion a. How large is the money supply (M1)? b. Are the banks fully utilizing their lending capacity? billion in excess Banks currently have reserves. Now assume that the public deposited another $20 billion in cash in transactions accounts. c. What would happen to the money supply initially (before any lending takes place)? Assuming the $20 billion in cash is not new money in the system, M1 will billion d. How much would the total lending capacity of the banking system be after this portfolio switch? billion M M 9. How large would the money supply be if the banks fully utilized their lending capacity? f. What three steps could the Fed take to offset the potential growth in M1? reserve requirements the discount rate bonds Week 8: Homework 0 Saved Help Save 8. E points eBook Ask Print References Suppose the Federal Reserve decided to sell $40 billion worth of government securities in the open market. a. By how much will M1 change initially if the entire $40 billion is withdrawn from transactions accounts? Note: if M1 decreases be sure to include a negative sign (-) in front of your answer. M1 will initially change by: :I billion b. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? Note: if fending capacity decreases be sure to include a negative sign H in front of your answer: Total lending capacity will change by: :l billion c. How will banks induce investors to respond to this change in lending capacity? If the money supply increases, interest rates will :I and investors will want to borrow more funds. If the money supply decreases, interest rates will and investors will want to borrow fewer funds. Week 8: Homework 0 Saved 5 points eBook Ask Print References Policy Perspectives From the end of 2012 to the end of 2013, M1 increased from $2.546 billion to $2,810 billion. Instructions: Round your response to one decimal place. a. By what percentage did M1 increase? b. If the Fed had used a xed rule of 3 percent growth of the money supply, how large would M1 have been in 2013? E E billion Week 8: Homework 0 Saved Help Save 8. Exit Submit Check my work Refer to the News Wire to answer one question. 5 points NEWS WIRE FISCAL STIMULUS: GOVERNMENT SPENDING Senate Oks Obama Stimulus Package eBook Washington, D.C.The U.S. Congress gave nal approval to President Obama's $787 billion stimulus package yesterday. The $787 billion package is intended to give a boost to the economy, lifting it out of the Ask current recession. At the heart of the package is a half-trillion increase in spending for infrastructure construction, high-speed rail projects, increased unemployment benets, and scores of other government Print programs. The package will pump $185 billion into the economy this year and $399 billion next year. Democrats say the plan will save or create 3.5 million jobs. The Senate passed the measure by a vote of References 6038 with the support of three Republicans. Earlier, the House passed the bill by a vote of 246183 with no Republican support. Source: News accounts of February 13-15, 2009. If consumers had an MP0 of 0.90, by how much would aggregate demand have eventually increased with Obama's spending stimulus, billion assuming the stimulus was entirely gavernment spending? Which of the following is an example of fiscal stimulus? Multiple Choice O an increase in government spending on new military jet fighters O an increase in consumption because of improved consumer confidence O an increase in personal income taxes for families with children O an increase in the purchase of office buildings by foreign investors2 If consumers spend 98 cents out of every extra dollar received, the Multiple Choice 0 marginal propensity to consume is 98. O marginal propensity to save is 1.02. O marginal propensity to consume is 0.98. marginal propensity to consume is 0.02. Suppose government spending increases, which causes producers to hire more workers. As a result, households have more income to spend, which causes aggregate demand to increase even more, this is known as the Multiple Choice O magnifying process. multiplier process. scal effect. O saving effect. The multiplier is equal to Multiple Choice 0 1 - Marginal propensity to save. Marginal propensity to save + Marginal propensity to consume. O 1 + Marginal propensity to save. 1+ Marginal propensity to consume. reserve requirement is 0.10. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess 5 Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserves will increase by Multiple Choice O $1 million. $20 million. 0 0 $40 million. O $2 billion. The buying and selling of government bonds to influence reserves in the banking system is the responsibility of the Multiple Choice O twelve regional Federal Reserve banks. O executive Branch of the government. O board of Governors of the Federal Reserve. O federal Open Market Committee. By raising or lowering the , the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves. Multiple Choice 0 reserve ratio 0 discount rate 0 money multiplier 0 yield