Question

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?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The crowding out effect is a negative effect on expansionary monetary policy.

In theory and due to the money multiplier effect, A $100 million in defense spending would shift the aggregate demand to the right by $100 million but the crowding out effect states that the government would fund this amount by increasing taxes,interest rates and borrow money by selling government bonds. A rise in interest rates would discourage the investment and consumption so the 75% crowding out effect means that the aggregate demand will only shift to the right by ($100-$75) million = $25 million

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Define and explain the crowding out effect. How does it impact the aggregate demand/aggregate supply model?...
Define and explain the crowding out effect. How does it impact the aggregate demand/aggregate supply model? Be specific
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?
Suppose the marginal propensity to consume is 0.5. If the government believes aggregate demand is $500...
Suppose the marginal propensity to consume is 0.5. If the government believes aggregate demand is $500 billion below potential and any increase in government spending will experience $100 billion in crowding out, how much does the government need to increase spending to have aggregate demand reach potential?
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...
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?
What is the "crowding out" effect? How does it affect the economy? (Thorough explanation)
What is the "crowding out" effect? How does it affect the economy? (Thorough explanation)
How does the crowding out effect tend to offset expansionary fiscal policy
How does the crowding out effect tend to offset expansionary fiscal policy
1) If the stock market crashes, then aggregate demand increases, which the Fed could offset by...
1) If the stock market crashes, then aggregate demand increases, which the Fed could offset by increasing the money supply. aggregate demand increases, which the Fed could offset by decreasing the money supply. aggregate demand decreases, which the Fed could offset by increasing the money supply. aggregate demand decreases, which the Fed could offset by decreasing the money supply. 2) In order to avoid entering a recession, the government of Batavia spent $300 billion improving infrastructure around the country. Assuming...
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
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT