What Is the Value of the Spending Multiplier When MPC

question 134

Multiple Choice

What is the value of the spending multiplier when MPC = 0.85 and MPI = 0.3?

• A)1.82
• B)0.85
• C)2.22
• D)1.18
• E)2.50

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Definitions:

Reserve Requirement

Central bank regulations regarding the minimum amount of reserves that commercial banks must hold against deposits.

Margin Requirements

The minimum amount of equity that must be maintained in a margin account as mandated by brokers or exchanges.

Discount Rate

The interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility.

Money Market Instruments

Short-term financial instruments that are highly liquid and designed for cash management by investors, including treasury bills, commercial paper, and certificates of deposit.