Question

Question 11 pts

Government purchases rise by $50 billion. According to Keynesian economists:

Crowding out will reduce private sector spending by most of the $50 billion.

Private sector spending will be unchanged.

Crowding out will reduce private sector spending by all of the $50 billion.

Private sector spending will rise as jobs and income are created.

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Question 21 pts

Criticisms of the simple Keynesian model include that it:

is too long run in its approach.

treats wages and prices as stickier than they really are.

treats the velocity of money as far more stable than it really is.

all of the above.

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Question 31 pts

The economy is more prone to rise above FE and for longer than to fall below it.

True

False

Answer 1

Question 11

According to the Keynesian economists, any increase in government spending does not lead to crowding out of private sector spending or investment. The private sector spending or investment remains unchanged.

Thus,

According to Keynesian economists, rise in government purchases by $50 billion will not impact the private sector spending and it will remain unchanged.

Hence, the correct answer is the option (2) [Private sector spending will be unchanged].