In the one-period, closed economy model, why does government spending crowd out private purchases? O A. As a government increases, the government provides more consumable and public goods, and, therefore, private purchases are not as necessary. O B. Private purchases rely solely on government spending, and, therefore, if a consumer is paying more taxes, the government is allocated more money for spending. OC. As a consumer pays higher taxes, his or her disposable income falls, and in the equilibrium he or she spends less on consumption goods and works harder to support a larger government. O D. A smaller government reduces private consumption through a positive income effect produced by a smaller taxes required to finance higher government spending. O E. none of the above
In the one-period, closed economy model, why does government spending crowd out private purchases? O A. As a government increases, the government provides more consumable and public goods, and, therefore, private purchases are not as necessary. O B. Private purchases rely solely on government spending, and, therefore, if a consumer is paying more taxes, the government is allocated more money for spending. OC. As a consumer pays higher taxes, his or her disposable income falls, and in the equilibrium he or she spends less on consumption goods and works harder to support a larger government. O D. A smaller government reduces private consumption through a positive income effect produced by a smaller taxes required to finance higher government spending. O E. none of the above
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:In the one-period, closed economy model, why does government spending crowd out private purchases?
O A. As a government increases, the government provides more consumable and public goods, and, therefore, private purchases are not as necessary.
O B. Private purchases rely solely on government spending, and, therefore, if a consumer is paying more taxes, the government is allocated more money for
spending.
OC. As a consumer pays higher taxes, his or her disposable income falls, and in the equilibrium he or she spends less on consumption goods and works harder to
support a larger government.
O D. A smaller government reduces private consumption through a positive income effect produced by a smaller taxes required to finance higher government
spending.
O E. none of the above
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