Let’s study the crowding-out effect which is triggered by a discretionary fiscal policy.How does a temporary increase in government purchase affect the interest rate based on the money supply-demand model? Why?Suppose we are having stagflation because of a supply shock. Please show the temporary increase in government purchases can restore the long-run macroeconomic equilibrium using a graph.What is the meaning of the crowding-out effect? Please show the short-run crowding out effect using a graph.

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How does a temporary increase in government purchase affect the interest rate based on the money supply-demand model? Why?

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, And Sources Of Business Cycles

Section: Chapter Questions

Problem 11E

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