1- Some economists argue that because increases in government spending crowd out

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1-      Some economists argue that because increases in government spending crowd out private spending, increased government spending will reduce the long-run growth rate of real GDP.

a-      Is this most likely to happen if the private spending being crowded out is consumption spending, investment spending, or net exports? Briefly Explain.

b-      In the terms of its effect on the long-run growth rate of real GDP, would it matter if the additional government spending involves (i) increased spending on highways and bridges or (ii) increased spending on national parks? Briefly explain.

2-      The following is from a message by President Hoover to Congress, dated on May 5, 1932.

                I need not recount that the revenues of the Government as estimated for the next fiscal year show a decrease of about $1,700,000,000 below the fiscal year 1929, and inexorably require a broader basis of taxation and a drastic reduction of expenditures in order to balance the Budget. Nothing is more necessary at this time than balancing the Budget.

Do you think President Hoover was correct in saying that, in 1932, nothing was more necessary than balancing the federal government's budget? Explain.

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