1. What factors could explain why some countries have a higher multiplier than others? 2. How can…

1. What factors could explain why
some countries have a higher multiplier than others?

2. How can the interaction of the
multiplier and the accelerator explain cyclical fluctuations in national income?

3. Why is it difficult to predict the size
of the accelerator?

4. Imagine that the banking system
receives additional deposits of 100 million and that all the individual banks wish
to retain their current liquidity ratio of 20 per cent.

(a) How much will banks choose to
lend out initially?

(b) What will happen to banks
liabilities when the money that is lent out is spent and the

1. What factors could explain why
some countries have a higher multiplier than others?

2. How can the interaction of the
multiplier and the accelerator explain cyclical fluctuations in national income?

3. Why is it difficult to predict the size
of the accelerator?

4. Imagine that the banking system
receives additional deposits of 100 million and that all the individual banks wish
to retain their current liquidity ratio of 20 per cent.

(a) How much will banks choose to
lend out initially?

(b) What will happen to banks
liabilities when the money that is lent out is spent and the recipients of it
deposit it in their bank accounts?

(c) How much of these latest
deposits will be lent out by the banks?

(d) By how much will total deposits
(liabilities) eventually have risen, assuming that none of the additional liquidity
is held outside the banking sector?

(e) How much of these are matched
by (i) liquid assets; (ii) illiquid assets?

(f) What is the size of the bank
deposits multiplier?

(g) If one-half of any additional
liquidity is held outside the banking sector, by how much less will deposits
have risen compared with (d) above?

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