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    government spending multiplier

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    1. If the government spending multiplier is 6, what is the tax multiplier?

    2. You are given this account for a bank:


    RESERVES $ 500 $ 3,500 DEPOSITS
    LOANS 3,000

    The required reserve ratio is 10 percent.

    A. How much is the bank required to hold as reserves, given its deposits of $ 3,500?

    B. How much are its excess reserves ?

    C. How much can the bank increase its loans ?

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    Solution Preview

    1. The government spending multiplier is 1/MPS and the tax multiplier is -MPC/MPS = -(1-MPS)/MPS.). Its absolute value is always one less than the simple multiplier and ...

    Solution Summary

    Calculation of the tax multiplier given the government spending multiplier