Impact of Federal reserve purchase of bonds on money supply, tax cuts and government spending.
1. Find the overall change in the economy's money supply if, when the reserve ratio is 5%, the Federal Reserve System buys $250 million of US government bonds from the banking system. What would have been the change if several billionaires deposited that sum in several banks?
2. Illustrate what will be the change in GDP if we get the subsiquent fiscal stimulus when national MPC is 80%:
a. A $300 million tax cut
b. A $300 million rise in government spending
3. We have the following data for years one and two
| Year |
Disposable Income |
Consumption |
Savings |
| 1 |
35,000 |
30,000 |
5,000 |
| 2 |
45,000 |
33,000 |
12,000 |
Find APC, APS, MPC, & MPS over that time period.