Explanation it correctly and details Q)Suppose that economists observe than an increase in government spending of $6 billion raises total demand for goods and services by $16 billion. (a) If these economists ignore the possibility of crowding out, what would they estimate the marginal propensity to consume (MPC) to be? (b) Now suppose the economists allow for crowding out. Would their new estimate of the MPC be larger or smaller than the initial level? Explain your answer.

Essentials of Economics (MindTap Course List)
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ISBN:9781337091992
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Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand
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Explanation it correctly and details

Q)Suppose that economists observe than an increase in government spending of $6 billion raises total demand for goods and services by $16 billion.

(a) If these economists ignore the possibility of crowding out, what would they estimate the marginal propensity to consume (MPC) to be?

(b) Now suppose the economists allow for crowding out. Would their new estimate of the MPC be larger or smaller than the initial level? Explain your answer.

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