39 Are the following statements true or not true? 1. Because of the crowding out effect in the circular flow model of a closed economy, a fiscal expansion leads to a higher real interest rate, and therefore less private investment and a lower level of aggregate production. 2. In the circular flow model of a closed economy, excess demand in the market for loanable funds leads to a higher real interest rate, such that the supply of loanable funds increases and the demand for loanable funds decreases, until the loanable funds market is again in equilibrium. O Statement I is true; statement II is true. O Statement I is true; statement II is not true. O Statement I is not true; statement II is true. O Statement I is not true; statement Il is not true.
39 Are the following statements true or not true? 1. Because of the crowding out effect in the circular flow model of a closed economy, a fiscal expansion leads to a higher real interest rate, and therefore less private investment and a lower level of aggregate production. 2. In the circular flow model of a closed economy, excess demand in the market for loanable funds leads to a higher real interest rate, such that the supply of loanable funds increases and the demand for loanable funds decreases, until the loanable funds market is again in equilibrium. O Statement I is true; statement II is true. O Statement I is true; statement II is not true. O Statement I is not true; statement II is true. O Statement I is not true; statement Il is not true.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:39 Are the following statements true or not true?
1. Because of the crowding out effect in the circular flow model of a closed economy, a fiscal expansion
leads to a higher real interest rate, and therefore less private investment and a lower level of
aggregate production.
2. In the circular flow model of a closed economy, excess demand in the market for loanable funds leads
to a higher real interest rate, such that the supply of loanable funds increases and the demand for
loanable funds decreases, until the loanable funds market is again in equilibrium.
Statement I is true; statement II is true.
O Statement I is true; statement Il is not true.
Statement I is not true; statement II is true.
Statement I is not true; statement II is not true.
Transcribed Image Text:38
The table below shows the composition of GDP in the U.S. in 2016 according to the income approach and
the expenditure approach. VWe also know that labour income in the U.S. in 2016 was 60% of GDP. Are the
following statements about the U.S. in 2016 then true or not true?
1. Compensation of employees in 2016 was 60% of GDP and operating surplus and mixed income in
2016 was 33.3% of GDP (Le. z - 60 and az = 33.3).
2. As private consumption was higher than labour income in 2016, private saving was negative in 2016.
The composition of GDP (in percent, 2016)
Income approach:
• taxes less subsidies on production and imports: 6.7
• compensation of employees:
• operating surplus and mixed income:
Expenditure approach:
• private consumption:
• gross capital formation:
• government consumption:
• net exports:
68.5
20.4
14.3
-2.8
Source: OECD
Statement I is true; statement II is true.
Statement I is true: statement Il is not true.
Income approach:
• taxes less subsidies on production and imports: 6.7
• compensation of employees:
• operating surplus and mixed income:
Expenditure approach:
• private consumption:
• gross capital formation:
• government consumption:
• net exports:
68.5
20.4
14.3
-2.8
Source OECD
Statement I is true; statement II is true.
Statement I is true; statement II is not true.
Statement I is not true; statement II is true.
Statement I is not true; statement II is not true.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education