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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
ISBN: 9781305971509

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BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
ISBN: 9781305971509
Textbook Problem

In which of the following circumstances is expansionary fiscal policy more likely to lead to a short-run increase in investment? Explain.

a. When the investment accelerator is large or when it is small?

b. When the interest sensitivity of investment is large or when it is small?

Subpart (a):

To determine
Expansionary fiscal policy, investment accelerator, and interest rate sensitivity to investment.

Explanation

Expansionary fiscal policy is more likely to lead to a short run increase in investment, when the investment accelerator is large. This is because expansionary fiscal policy causes an increase in agg...

Subpart (b):

To determine
Expansionary fiscal policy, investment accelerator, and interest rate sensitivity to investment.

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