11. The asset demand for money: a. is unrelated to both the interest rate and th

Question

11. The asset demand for money: a. is unrelated to both the interest rate and the level of GDP. b. varies inversely with the rate of interest. c. varies inversely with the level of real GDP. d. varies directly with the level of nominal GDP Fiscal policy 12. If the MPS in an economy is 1, government could shift the aggregate demand curve rightward by $40 billion by: a. increasing government spending by $4 billion. b. increasing government spending by $40 billion. c. decreasing taxes by $4 billion. d. increasing taxes by $4 billion. Which of the following represents the most expansionary fiscal policy? a. a $10 billion tax cut b. a $10 billion increase in government spending c. a $10 billion tax increase d. a $10 billion decrease in government spending 13.

Explanation / Answer

11> b> varies inversely with rate of interest

Reason

If the rate of interest rises, people would like to keep the money in the bank, thus the demand for money will decrease.

12> The multiplier is 1/0.1=10

40/10=4

So, option c is correct.

13> b

Spending is more expansionary than tax cut.

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