Given the above information, assume the following: 1. For every 1% increase (decrease) in interest rate, planned investment decreases (increases) by $5 billion. 2. For every $10 billion increase (decrease) in government spending, interest rate increases (decreases) by 1%. 3. The MPC = 0.8 1) When the government increases spending by $20 billion, the crowding-out effect can be represented by a a) $20 billion decrease in investment. b) $10 billion decrease in investment. c) 2% decrease in the interest rate. d) 1% increase in the interest rate. 2) Taking the crowding-out effect into consideration, if the government increases spending by $30 billion, the new equilibrium output is a) $575 billion. b) $775 billion. c) $850 billion. d) $626 billion.
Given the above information, assume the following:
1. For every 1% increase (decrease) in interest rate, planned investment decreases
(increases) by $5 billion.
2. For every $10 billion increase (decrease) in government spending, interest rate
increases (decreases) by 1%.
3. The MPC = 0.8
1) When the government increases spending by $20 billion, the crowding-out effect can be
represented by a
a) $20 billion decrease in investment.
b) $10 billion decrease in investment.
c) 2% decrease in the interest rate.
d) 1% increase in the interest rate.
2) Taking the crowding-out effect into consideration, if the government increases spending
by $30 billion, the new equilibrium output is
a) $575 billion.
b) $775 billion.
c) $850 billion.
d) $626 billion.
![Refer to the information provided in the below table to answer the
A Hypothetical Economy
$400 billion
Consumption (C)
Planned Investment (I)
Government Spending
$200 billion
$100 billion](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4a3b999c-3a10-4570-8bde-77d8af93d3e1%2Fa1d4303b-a2cd-4842-bd4e-1bec56621824%2Fphec53q_processed.png&w=3840&q=75)
![](/static/compass_v2/shared-icons/check-mark.png)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
![Principles of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781305585126/9781305585126_smallCoverImage.gif)
![Managerial Economics: A Problem Solving Approach](https://www.bartleby.com/isbn_cover_images/9781337106665/9781337106665_smallCoverImage.gif)
![Managerial Economics & Business Strategy (Mcgraw-…](https://www.bartleby.com/isbn_cover_images/9781259290619/9781259290619_smallCoverImage.gif)