Question

1 Describe the crowding-out effect of an increase in government purchases. 2 Is a “strong dollar”...

1 Describe the crowding-out effect of an increase in government purchases.

2 Is a “strong dollar” a good thing? Explain

Homework Answers

Answer #1

Question 1

When government increases its purchases then it generally borrows in order to pay for these increased purchases.

This borrowing by government leads to increase in demand for loanable funds in loanable funds market.

Given the supply of loanable funds, this increase in demand for loanable funds leads to increase in interest rates.

Increase in interest rates increases the cost of borrowing for businesses and households.

This compels the businesses and households to reduce investment and consumption spending backed by credit.

This decrease in consumption spending and investment spending due to increase in interest rate as government has increased its purchases is termed as crowding out effect of an increase in government purchases.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
explain the “crowding out” effect and how this effect might be the result of some specific...
explain the “crowding out” effect and how this effect might be the result of some specific stimulus to the economy such as a rapid increase in federal government expenditures (assuming the economy is at full employment). In the current U.S. economy, could you imagine a set of conditions where increased federal government spending actually caused private investment spending to rise (not fall)? Explain with an example, how this “crowding in” might occur.
7. Assume that the MPC is 0.9 and that the total crowding-out effect is $6 billion....
7. Assume that the MPC is 0.9 and that the total crowding-out effect is $6 billion. Government purchases increase by $10 billion. By how many billion will the aggregate demand shift? In which direction?
Suppose that the MPC = 0.60; there is no investment accelerator and no crowding-out. If government...
Suppose that the MPC = 0.60; there is no investment accelerator and no crowding-out. If government expenditures increase by $25 billion, how does aggregate demand change in direction and size as well? If NX falls $40 billion, the MPC is 8/11, and there is a multiplier effect with no crowding out and no investment accelerator, how much does aggregate change direction and size as well? is 8/11 x 40 billion right?
Crowding out refers to the concept that Group of answer choices a) an increase in the...
Crowding out refers to the concept that Group of answer choices a) an increase in the government's budget deficit causes a decrease in Investment. b) an increase in the government's budget deficit automatically causes Taxes to increase. c) an increase in Investment causes a decrease in Government Purchases. d) the introduction of spending bills to Congress and the Senate causes Congress and the Senate to shelve other legislation.
With a 75% crowding out effect, how much does Aggregate Demand increase from the $100M in...
With a 75% crowding out effect, how much does Aggregate Demand increase from the $100M in defense spending?
When crowding out occurs in an economy, it can reduce expenditures for ... Multiple Choice government...
When crowding out occurs in an economy, it can reduce expenditures for ... Multiple Choice government purchases. consumer purchases. business investments. both consumer purchases and business investments.
Crowding out refers to a situation in which _______. a an increase in the Fed Funds...
Crowding out refers to a situation in which _______. a an increase in the Fed Funds rate leads to lower financial frictions, thus stimulating aggregate demand and with it the economy. b an increase in government spending leads to additional consumption, thereby amplifying the total aggregate demand effect. c an increase in government spending leads to higher inflation and therefore higher interest rates, which in turn reduces consumption and investment expenditures. d increased competition across firms leads to more crowded...
Which of the following is an example of crowding-out? Group of answer choices The government invests...
Which of the following is an example of crowding-out? Group of answer choices The government invests in education, shifting the long-run aggregate supply curve to the right. The government lowers taxes, but spending does not increase. The government adopts a balanced budget amendment. The government increases spending but does not increase taxes, and the size of the deficit increases. The government pays $2 million to workers who have lost their jobs in the form of unemployment compensation.
Which of the following is true? 1.Keynesians argue that the crowding-out effect is rather insignificant. 2.Keynesians...
Which of the following is true? 1.Keynesians argue that the crowding-out effect is rather insignificant. 2.Keynesians advocate increasing the money supply during economic recessions but decreasing the money supply during economic expansions. 3.Monetarists argue that the crowding-out effect is rather large. 4.All of these. 5.Monetarists advocate increasing the money supply by a constant rate year after year. Under the natural rate hypothesis, expansionary monetary and fiscal policies can at best produce a: 1.short-run change in the long-run Phillips curve. 2.permanent...
In your own words, explain what crowding out is and explain how it works. What is...
In your own words, explain what crowding out is and explain how it works. What is the effect of crowding out on the economy’s GDP? How is the government debt different from a budget deficit? Assume that the government is in a balanced budget position. Does the government’s budget balance improve, deteriorate, or remain unchanged if the government cuts its spending in a recession, ceteris paribus? Explain and draw a graph to illustrate your argument.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT