Question

The maximum value of the monetary policy multiplier is _____(where b implies sensitivity of planned investment spending to interest rate, c implies marginal propensity to consume and t = marginal tax rate, k implies sensitivity of money demand to interest rate).

• A. $\frac{b}{1-c(1-t)}$
• B. $\frac{k}{1-c(1-t)}$
• C. $\frac{1}{k}$
• D. $\frac{1}{b}$

Answer 1

Answer: (C)

$\frac{1}{k}$

Answer 2

The correct option is(C): $\frac{1}{k}$