2. Assume MPC = 0.9. Government increased its spending by 100. 2.a. How much would this increase the GDP immediately?(here, no consideration of the multiplier effect nor the crowding-out effect) Considering the multiplier effect but not the crowding output effect, how much would be the eventual increase in GDP through the multiplier effect? 2.b. How the changes in 2.a. affect the money demand: Decrease, Increase, or No change? How would the equilibrium interest rate change: Decrease, Increase, or No change? 2.c. Now, consider the crowding-out effect. How would the crowding-out effect change the immediate increase in 2.a.: Decrease, Increase or No change? How would the crowding-out effect change the eventual increase in GDP in 2.a.: Decease, Increase, or No change?
2. Assume MPC = 0.9. Government increased its spending by 100.
2.a. How much would this increase the
the crowding-out effect)
Considering the multiplier effect but not the crowding output effect, how much would be the eventual increase in GDP through the multiplier effect?
2.b. How the changes in 2.a. affect the money demand: Decrease, Increase, or No change?
How would the equilibrium interest rate change: Decrease, Increase, or No change?
2.c. Now, consider the crowding-out effect.
How would the crowding-out effect change the immediate increase in 2.a.: Decrease, Increase or No change?
How would the crowding-out effect change the eventual increase in GDP in 2.a.: Decease, Increase, or No change?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
