In January, the interest rate is 5 percent and firms borrow $ 50 billion per month for investment projects. In February, the federal governmnet doubles its monthly borrowing from $ 25 billion to $ 50 billion. That drives the interest rate up to 7 percent. As a result, firms cut back their borrowing to only $ 30 billion per month.
Which of the following is true?
A). There is no crowding-out effect because the government's increase in borrowing exceeds firms' decrease in borrowing.
B) There is a crowding-out effect of $20 billion.
C) There is a crowding-out effect of $ 25 billion.
D). There is no crowding-out effect because both the government and firms are still borrowing a lot.
Want to see the full answer?
Check out a sample Q&A here
Related Economics Q&A
Find answers to questions asked by students like you.
Q: suppose the government wishes to illuminate recess or a gap of 100 billion in the MPC is .075 how…
A: Given, Gap = 100 billion MPC = .075
Q: Explain how an increase in government spending may decrease private investment (crowding-out…
A: When government raises its expenditure on investment, it leads to a rise in the aggregate demand in…
Q: S. The "crowding- out effect" refers to the possibility that larger expen Ehe government simply…
A: Government borrows from the market to fund its increased expenditure, this borrowing leads to an…
Q: Government spending in Robok is $150 billion, and its only tax is an income tax with a marginal tax…
A: Government spending= $150 billion Marginal tax rate= 0.3 Government budget= $440
Q: A. If your MPC = 0.6 and government spending (G) increases by $800. What will happen to the…
A: a. MPC = 0.6 ∆G=$800
Q: Suppose the government decide to use fiscal policy to close the output gap. The marginal propensity…
A: here we calculate the change of government spending require to close the GDP output , by using the…
Q: Question: Given the following model for an economy C= 100 + 0.8Yd G= 800 T= 500 T= 200 d) Find Tax…
A: Given, C = 100 + 0.8Yd G = 800 T = 500 I = 200
Q: Government spending in Robok is $90 billion, and its only tax is an income tax with a marginal tax…
A: Click to see the answer
Q: Why $100 spent by government brings a larger increase in the equilibrium level of income than $100…
A: The value of government purchase multiplier is: The tax multiplier is:
Q: 8. Which of the following describes crowding out accurately? A) Government, businesses and consumers…
A: Hello, thank you for the question. Since there are more than three multiple choice questions asked…
Q: Suppose economists observe that an increase in government spending of $10 billion raises the total…
A: Money multiplier = 1 / (1-MPC)
Q: he data below is for the small economy of Christodea in 2015. Consumption: C = 500 + 0.75Y, Net…
A: Investment multiplier = (1 / 1 - MPC) = (1/ 1- 0.75) = 4 a) So, for government to decrease…
Q: Suppose the economy is operating at equilibrium, with Y0 5 1,000. If the government undertakes a…
A: Answer: Given, Equilibrium income (Y0) = 1,000 Increase in tax rate (t) = 0.05 Increase in…
Q: Do you notice any crowding out effect when government implemented aggressive expansionary fiscal…
A: Crowding out occurs when rising interest rates cause a decrease in private investment spending,…
Q: The following is information for the economy of Texas, where taxes are wholly autonomous: C = 40 +…
A: The level of income can be calculated through the expenditure method by taking the consumption,…
Q: What is marginal propensity to consume and marginal tax rate? Why is the gov expenditure multiplier…
A: In Keynesian economics, the change in aggregate expenditure in the economy is able to affect the…
Q: f the current real GDP is P700 billion, which of the following policies would bring the economy to…
A: MPC = 0.8 => Government spending multiplier = 1 / (1-MPC) => Government spending multiplier =…
Q: Instead of paying transfer (TR) if the government were to increase government spending (G), what…
A: In the IS-LM model, when TR are paid by the government, it raises the disposable income (YD) of the…
Q: Instead of paying transfer (TR) if the government were to increase government spending (G), what…
A: A situation when increased interest rates because a discount privately investment spending specified…
Q: Instead of paying transfer (TR) if the government were to increase government spending (G), what…
A: Given the statement is Instead of paying transfer (TR) if the government were to increase…
Q: 2. Fiscal policy Suppose a hypothetical economy is currently in a situation of deficient aggregate…
A: Given: Deficient aggregate demand=64 billion Economist A: Government spending multiplier=8, Tax…
Q: Government spending in Robok is $140 billion, and its only tax is an income tax with a marginal tax…
A: here we calculate the following terms by using the given information , so the calculation of the…
Q: 6. Changes in taxes The following graph shows the aggregate demand curv Shift the aggregate demand…
A: When there is a fall in the tax rate in the economy, people are left with more disposable…
Q: Explain the effect of a discretionary cut in taxes of $50 billion on the economy when the economy's…
A: Discretionary fiscal policy means the government make changes to tax rates and or levels of…
Q: Explain the effect of a discretionary cut in taxes of $50 billion on the economy when the economy's…
A: Both a tax cut and increase in government spending are expansionary fiscal policy tools, aimed to…
Q: Suppose that in 2005 the government collected $240 billion in tax revenue and spent $270 billion,…
A: The budget is said to be balanced when the tax revenue is equal to the government spending. A budget…
Q: 16. If consumers in a country spend 4/5 of their disposable income. If their government decreases…
A: Aggregate demand is the entire demand for all completed products and services produced in a given…
Q: The GDP must grow by at least $60 billion in order to achieve the target growth rate. The country is…
A: The gross domestic product(GDP) refers to the market value of all the final commodities(goods and…
Q: Suppose, the Australian economy is in good shape (operating at its productive capacity Y*). However,…
A: Due to increase in spending and fiscal expansion,interest rates would be lowered.
Q: Suppose, the Australian economy is in good shape (operating at its productive capacity Y*). However,…
A: In fiscal policy the government uses its expenditures(E) and revenues(R) programs to produce…
Q: 17 of 25 If the federal government increases govemment spending to increase aggregate demand and…
A: Sometimes higher government spending lowers consumption spending and investment spending.
Q: which of the following individuals would most likely favor an increase in government spending, as…
A: a and d would be opposed to tax cut.
Q: Assume an economy is in recession and the government is considering using fiscal stimulus measures…
A: When government raises its expenditure on investment, it leads to a rise in the aggregate demand in…
Q: C. Identify and explain what the spending and tax multipliers d. Explain why a change in taxes and a…
A: The spending plan of the government is supposed to be adjusted if the incomes of the government are…
Q: A governor presents an exparsionary fiscal plan to stimulate production throughcut the state. Which…
A: The best expansionary fiscal plan to stimulate the production in the state is to reduce the tax rate…
Q: Suppose the government implements fiscal consolidation by cutting spending while the nominal…
A: Fiscal consolidation refers to the situation when government tries to reduce its fiscal deficit by…
Q: Critically explain why governments use the expansionary fiscal policy.
A: The policies which have an influence on the economy, when the government adjusts its spending amount…
Q: 15 MULTIPLE SELECT: If the government decides to utilize a contractionary fiscal policy, which of…
A: Fiscal policy is sometimes compared with monetary policy, which is determined by central bankers…
Q: or disagree and explain your answer . During periods of budget surplus (when G< T), the govern- ment…
A: The following problem has been answered as follows:
Q: 4. Based on the answer to the previous question (question #3), if half of those government…
A: 4) The government expenditure should be increased by 75. Half of this is financed by taxes. The…
Q: Derive and Explain the significance of Tax Multiplier and Government Expenditure Multiplier. Why do…
A: The proportional amount of rising or reduction in the final revenue arising from the investment…
Q: Derive and Explain the significance of Tax Multiplier and Government Expenditure Multiplier. Why do…
A: Government spending multiplier explains the change in the real output (Y) due to the change in the…
Q: Derive and Explain the significance of Tax Multiplier and Government Expenditure Multiplier. Why do…
A: Tax multiplier represents how change in the tax have a multiple fold impact on the output or real…
Q: CONTRACTIONARY FISCAL POLICY GOV SPENDING 30% TAXATION tha t 70% How will Contractionary Fiscal…
A: Contractionary Fiscal Policy refers to decrease in government spending or increase in taxes in an…
Q: Complete the following sentence. As it relates to fiscal policy, a budget deficit exists when:Choose…
A: Fiscal policy measures the effectiveness of government budgets in an economy. This includes…
Q: Discuss the consequence of a rise in direct taxes to the economy as a whole
A: Taxes: The direct tax included the income tax that is levied on the income of an individual. Income…
Q: 3.3 Identify each of the following as (i) part of an expansionary fiscal policy, (ii) part of a…
A: Fiscal policy includes taxation and government spending. Expansionary fiscal policy-reducing taxes…
Q: 18)What action could the TCMB take to reduce the crowding-out effect of an expansionary fiscal…
A: The fiscal policy is the policy of the government regarding financial matters such as taxation and…
Q: G H. K GDP 7. Explain how the above graph illustrates the built-in stability of a progressive tax…
A: The gross domestic product (GDP) is a monetary indicator of the market value of all final products…
Q: What's the tax multiplier if MPC = 0.75? %3D Select one: a. -4 b. -3 с. 3 d. 0.33
A: Given: MPC is 0.75
