26.Which of the following will make crowding out caused by government borrowing

Question

26.Which of the following will make crowding out caused by government borrowing more severe?

A. A steep (inelastic) investment demand curve

B. A global credit market

C. Tax increases

D. A steep (inelastic) supply curve in the loanable funds market

E. None of the above

27.Crowding out could cause:

A. reduced long-run growth.

B. reductions in private investment.

C. higher interest rates.

D. greater returns to saving.

E. All of the above

28.If the MPC = 0.80 and taxes are increased by $1,000, the Keynesian model predicts the change in equilibrium GDP will be:

A. +$5,000.

B. +$4,000.

C. -$1,000.

D. -$4,000.

E. -$5,000.

29.If the economy is at full employment with an MPC of 0.90 and the government decreases taxes by $1,000, the resulting increase in output will be:

A. less than $4,000.

B. less than $5,000.

C. less than $8,000.

D. less than $9,000.

E. more than $9,000.

30.Government spending policies can be developed to work against the problems of unemployment and inflation because government spending can:

A. decrease aggregate demand to combat unemployment and increase aggregate demand to combat inflation.

B. increase aggregate supply to combat unemployment and decrease aggregate demand to combat inflation.

C. increase aggregate supply to combat unemployment and decrease aggregate supply to combat inflation.

D. increase aggregate demand to combat unemployment and increase aggregate demand to combat inflation.

E. increase aggregate demand to combat unemployment and decrease aggregate demand to combat inflation.

Explanation / Answer

26. A steep (inelastic) supply curve in the loanable funds market

27. Tax cut multiplier = MPC / (1-MPC)

. = 0.8 / (1-0.8)*1000 = -4000

28. less than $9,000

29. increase aggregate demand to combat unemployment and decrease aggregate demand to combat inflation

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.