Suppose there is an increase in the money supply, but that people's demand for money balances increases by a greater amount at the same time. The net effect would be
A. an increase in aggregate demand due to the increase in the money supply, but a decrease in aggregate supply due to the increase in the demand for money.
B. no change in aggregate demand or aggregate supply.
C. a lower price level in the long run.
D. lower interest rates, greater real GDP, and a higher price level as aggregate demand increases because of the indirect effect of the increase in the money supply.
Answer: C
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Everything else held constant, an increase in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________
A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease
The ratio of a change in consumption to a change in income is the:
a. consumption function. b. propensity to consume. c. average propensity to consume. d. extra propensity to consume. e. marginal propensity to consume.