Question

ONE BUCK OUT OF EVERY 10! They're Year Packs That's Your Code One lente of your innan mast poder Bad you ye eder bath the Aue and is filio! DAIN Dr. Seuss Which of the following is the best explanation of this carnan? The Fed may buy bonde to increase benk reserves, but it money supply incloses and interest rate fell only if banks lend the money. A decline in the money multiplier can delest an increase in the Inertiary base. 5. If the marginal argens ty ta cansume in the consumption function is high. increases in disposable income will use consumers to spend more, causing a bigger rise in aggregate de rand and a bigger inches in output If the racing arogans y ho consuma in the consumaton function is lowin in aggregale Jernard, and smaller increase in prices. indiaporabe income will CAUMOnsurera to save mone, causing a smallar rise in consumaton apanding. e analer risa 3. The Federal Reserve a recuce interest ratus to fighliessun, bu il interes, 19. slay Lou le lur le lory, vulpu may prow la exceed polericial, and the inflation is could rice. Tax cule can add lo vulpul growth by increasing converter spending and raising argi egale derend. But if the lax cul are loo sell, the elector aggregale demand and vulpul may be insignificent

Which of the following is the best explanation of this cartoon?

	a.	The Fed may buy bonds to increase bank reserves, but the money supply increases and interest rates fall only if banks lend the money. A decline in the money multiplier can defeat an increase in the monetary base.
	b.	If the marginal propensity to consume in the consumption function is high, increases in disposable income will cause consumers to spend more, causing a bigger rise in aggregate demand, and a bigger increase in output.
	c.	If the marginal propensity to consume in the consumption function is low, increases in disposable income will cause consumers to save more, causing a smaller rise in consumption spending, a smaller rise in aggregate demand, and a smaller increase in prices.
	d.	The Federal Reserve can reduce interest rates to fight recession, but if interest rates stay too low for too long, output may grow to exceed potential, and the inflation rate could rise.
	e.	Tax cuts can add to output growth by increasing consumer spending and raising aggregate demand.   But if the tax cuts are too small, the effect on aggregate demand and output may be insignificant.

Answer 1

It is given that one tenth of your income goes to war bonds which is indicator of savings. When marginal propensity to consume is low it means that marginal propensity to save is high and that consumption spending will increase by a smaller amount so that you can achieve inflation target at a lower level but will have to to bear with a lower GDP

Select option C.