17. (Figure: Determining SRAS Shifts) SRAS2 SRAS AD 0 Aggregate Output (Q) If th

Question

17. (Figure: Determining SRAS Shifts) SRAS2 SRAS AD 0 Aggregate Output (Q) If the govermment raises taxes or increases regulations, the short-run aggregate supply curve will shift from SRASo to A) SRAS; P B) SRAS;P C) SRAS;P and the price level will be at- 18. If the reserve requirement is 2.5% and a bank initially receives $30,000 in deposits from the Fed, then the maximum amount of money that the banking system can create is: A) S30,000. B) $1.2 million C) $1,500. D) $750. 19. Loosening monetary policy causes interest rates to and consumption and investment to A) rise; decrease B) fall; increase C) fall; decrease D) rise; increase

Explanation / Answer

17. Option B
Taxes or regulation will increase cost of the business which will result in shifting of SRASo to SRAS2 and an increase in eq price to P2

18 Option B

Money multiplier = 1/(reserve requirement) = 1/0.025 = 40

Money supply = 40*30000 = $1,200,000

19 Option B

Basically when money supply increases (or, loosens), LM curve shifts to the right and interest rate falls. AS a result, consumption and investment will increases.

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