Does government borrowing crowd out private sector spending?
What will be an ideal response?
Crowding out refers to government deficit spending financed by borrowing that increases interest rates and thereby reduces private borrowing and spending. The crowding out effect probably exists, but to what extent is debatable. If deficit spending is used to increase our nation's production possibilities through public investment in infrastructure, then the crowding out effect is reduced. However, history shows that rarely is there a significant amount of any deficit allocated toward productive-enhancing public investment infrastructure. The extent of a crowding-out effect is important because any crowding out renders fiscal policy less effective in stimulating the economy during a recession.
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Discounting is the process whereby
A) present values are adjusted to their future value, using the interest rate. B) future values are converted to their value today, using the interest rate. C) product prices are reduced (discounted) to increase sales and profits today. D) future values are adjusted for inflation.
Explain the law of one price and the theory of purchasing power parity. Why doesn't purchasing power parity explain all exchange rate movements in the short run? What factors determine long-run exchange rates?
What will be an ideal response?
Most macroeconomic variables that measure some type of income, spending, or production fluctuate closely together
a. True b. False Indicate whether the statement is true or false
Exhibit 2-15 Production possibilities curve
In Exhibit 2-15, the economy will experience the most future economic growth if it chooses what point now?
A. J. B. K. C. M. D. N.