How does a currency drain affect the money multiplier?
What will be an ideal response?
If the currency drain is zero so that all money created is deposited in bank accounts, the money multiplier is equal to one divided by the desired reserve ratio. If the currency drain is positive, then some newly created money is held in cash and is not deposited in bank accounts. In this case, the money multiplier is smaller so that a change in the monetary base leads to a smaller change in the quantity of money.
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Refer to the Article Summary. Assume countries initially enacted protectionist measures against Chinese steel imports. If these protectionist measures were eventually eliminated, then all else equal, the price of steel in those countries would ________ and the quantity of steel demanded in those countries would ________.
A) decrease; decrease B) increase; decrease C) decrease; increase D) increase; increase
Refer to Figure 28-1. Suppose that the economy is currently at point A. If the Federal Reserve engaged in expansionary monetary policy, where would the economy end up in the short run?
A) It would remain at point A. B) point B C) point C D) point D E) point E