Economics For Today
Economics For Today
9th Edition
ISBN: 9781305507074
Author: Tucker, Irvin B.
Publisher: Cengage Learning,
Question
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Chapter 23, Problem 16SQ
To determine

The correct statement regarding the crowding out effect.

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Which one of the following statements is TRUE about the concept of crowding out? Select one: a. Crowding out causes the textbook multiplier to become larger b. “Crowding out” occurs because the Fed increases money supply and  lowers interest rate c. “Crowding out” occurs because the Govt increases govt expenditures and this causes private consumption and investment to increase d. “Crowding out” occurs because the Govt increases govt expenditures and this causes private consumption and investment to decrease
Assume an economy is in recession and the government is considering using fiscal stimulus measures to boost spending, production and employment. c)  Explain how the 'crowding out' problem associated with increased government spending can be avoided. In your answer identify any additional policy that is needed.
1) Under which of the following scenarios would an expansionary fiscal policy be more effective? Group of answer choices a) Households consume more and MPC is higher. b) Households consume less and MPC is lower. c) Interest rate increases. d) Households save more to prepare for tax increases in the future. e) The government makes it more difficult for households to borrow.
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