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Thread: Economic "The Multiplier"

  1. #1
    Junior Member
    Sep 2007

    Economic "The Multiplier"

    Suppse the multiplier is 3, the money mutliplier is 6, and the income multiplier to rmoney supply is 4. The governemnt increases spending by $12 billion, but because the economy is operating at full capacity, it wants to use monetary plicy to offset the impact this increase will have on income

    a)Does central bank need to buy or sell bonds to offset this fiscal policy?
    b)How many bonds must the monetary authorities buy or sell to accomplish this end
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  2. #2
    MHF Contributor
    Aug 2007
    Not all notation or nomenclature is standard.

    Please define:

    Multiplier --
    Money Multiplier --
    Income Multiplier to Money Supply --

    Please define:

    Known relationships between fiscal policy and its effect on the money supply.
    Known relationships between bond transactions and the money supply.

    You probably have to read the chapter a couple more times and extract the formulas and theoretical relationships.

    Show your work.
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