If the Money Multiplier Is 3 and the Fed Wants

question 88

Multiple Choice

If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could

• A)buy $300,000 worth of bonds.
• B)buy $225,000 worth of bonds.
• C)sell $300,000 worth of bonds.
• D)sell $225,000 worth of bonds.

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Definitions:

Aggregate Demand Curve

A graphical representation of the total demand for goods and services in an economy at different price levels.

Price Level

Refers to the average of all current prices for goods and services in an economy.

Aggregate Quantity

The total amount, sum, or volume of goods or services produced or supplied in an economy at a given overall price level and time.

Keynesian Analysis

This approach focuses on the total spending in the economy and its effects on output and inflation, as per the theories of economist John Maynard Keynes.