10. Crowding-out effect Which of the following statements is correct? If most of the deficit is spent on current consumption, we expect the economy's productivity to increase. Large budget deficits may reduce private investment, thereby stifling economic growth. o The government must buy bonds from the public to finance its spending. Crowding out refers to the decrease in private investment stemming from an increase in consumer spending. The following graph shows the demand for private investment. Activity Frame Show the crowding-out effect of deficit spending on the demand for investment by moving the dot, dragging the investment demand (ID) curve, or both. INTEREST RATE Note: Select and drag the curve to the desired position. The curve will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. INVESTMENT 0₁ Point Along ID

10. Crowding-out effect Which of the following statements is correct? If most of the deficit is spent on current consumption, we expect the economy's productivity to increase. Large budget deficits may reduce private investment, thereby stifling economic growth. o The government must buy bonds from the public to finance its spending. Crowding out refers to the decrease in private investment stemming from an increase in consumer spending. The following graph shows the demand for private investment. Activity Frame Show the crowding-out effect of deficit spending on the demand for investment by moving the dot, dragging the investment demand (ID) curve, or both. INTEREST RATE Note: Select and drag the curve to the desired position. The curve will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. INVESTMENT 0₁ Point Along ID

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 5P

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Similar questions

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A government starts off with a total debt of $3.5 billion. In year one, the government runs a deficit of 400 million. In year two, the government runs a deficit of 1 billion. In year three, the government runs a surplus of 200 million. What is the total debt of the government at the end of year three?
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