PRIN.OF ECON.ACCESS CODE
2nd Edition
ISBN: 9780393691757
Author: Mateer
Publisher: NORTON
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Chapter 29, Problem 7QFR
To determine
To explain:
The effect of decreasing government borrowing on consumption, investment and interest rate provided other things being equal/
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Students have asked these similar questions
The federal government decides to stimulate the economy and increases government expenditure on new infrastructure projects by 110
billion. The marginal propensity to consume is MPC = 0.3 and the marginal propensity to import is MPI = 0.05. Suppose the crowding-out
effect is twice the amount of government spending, what is the change in output caused by the stimulus package of 110 billion in a closed
economy?
Number
what will happen to the aggregate demand If government purchases increase by $100 billion, and the crowd-out effect is larger than the multiplier effect
What causes the “crowding-out effect”?
Group of answer choices
Government borrowing and spending
Foreign firms dominating the domestic economy
Excessive importation of goods and services
Private consumption
Chapter 29 Solutions
PRIN.OF ECON.ACCESS CODE
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- Define the crowding-out effect. Analyze this effect for a closed and open economy. Usingnecessary graphs, compare these two different cases.arrow_forwardIf government spending rises by £500 million in an economy where the marginal propensity to spend is 0.6 then GDP will rise byarrow_forwardSuppose the government reduces taxes by 50,000,000, that there is no crowding out, and that marginal propensity to consume is 0.9. What is the total amount of additional economic activity that results from this tax cut?arrow_forward
- Assume there is a decrease in the aggregate demand, if expansionary fiscal policy is being used, the following action could be taken a. increase consumption by raising disposable income through cuts in personal taxes or payroll taxes b. increasing government spending by raising after-tax profits through cuts in business taxes c. increase government purchases through increased Federal Government spending on final goods and services and raising grants to state and local government to increase their expenditures on final goods and services d. All of the abovearrow_forwardIf the MPC equals 0.5, and real GDP is $14 trillion with potential real GDP $14.5 trillion, how much would governmentpurchases would need to increase by to restore the economy to potential real GDP?arrow_forwardDefine what is 'automatic stabiliser' in fiscal policy, and provide 2 examplesarrow_forward
- Given: C= 400 + .6Yd. Taxes = 600 Equilibrium Output = 4,000 At equilibrium, what is the sum of investment and government purchases in this economy?arrow_forwardIf government policy makers were worried about the inflationary potential of the economy, which of the following would be a correct fiscal policy change?arrow_forwardWhich of the following accurately describes the phenomenon of crowding out? government borrowing pushes up interest rates, driving out private investment and consumption government spending drive up the budget deficit government spending causes more goods to be allocated to the public sector and fewer are available for the private sector Increasing the proportion of public sector spending in the composition of GDP renders production less competitive and therefore less efficient.arrow_forward
- Assume an economy with no foreign sector, a marginal propensity to save of mps = 0.1, and a marginal income tax rate of t = 1/3. What change in government purchases would lead to an increase in national income of 500?arrow_forwardWhy does a $100 billion dollar increase in government spending increase output by more than $100 billion?arrow_forwardI'm doing economics homework and the question is asking If taxes were cut by $1 trillion and the MPC was 0.93, by how much would total spending increase in the first year with two spending cycles a year. Do I need to know MPS?arrow_forward
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