If the Central Bank of Macroland Puts an Additional 1,000

question 70

Multiple Choice

If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans totaling ________ and the money supply will increase by ________.

• A)$1,000; $1,000
• B)$9,000; $9,000
• C)$9,000; $10,000
• D)$1,000; $9,000

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Definitions:

Lagrangian

Function to be maximized or minimized, plus a variable (the Lagrange multiplier) multiplied by the constraint.

Lagrange Multiplier

A technique used in constrained optimization problems to find the maximum or minimum of a function subject to constraints.

Lambda

A symbol commonly used in mathematics and physics to represent wavelengths, eigenvalues, and decay constants, among other concepts.

Lagrange Multipliers

A strategy used in mathematical optimization to find the local maxima and minima of a function subject to equality constraints.