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.
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