What is "crowding-in" effect? Explain the factors which determine the strength of the crowding in effect
Crowding in occurs when government spending, by raising real GDP, induces increases in private investment spending. As the economy expands, businesses find it more profitable to add to their capacity in order to meet the greater consumer demands. Because of this induced investment, any increase in G may increase investment, rather than decrease it as the crowding-out hypothesis predicts.
The strength of the crowding-in effect depends on how much additional real GDP is stimulated by government spending and on how sensitive investment spending is to the improved business opportunities that accompany rapid growth.
You might also like to view...
For the monopoly shown in the figure above, when it maximizes its profit the marginal cost is ________ per unit and the price is ________ per unit
A) $10; $30 B) $20; $20 C) $10; $20 D) $30; $20.
The situation in which one firm can produce the total output of the market at lower cost than several firms is called
A) natural monopoly. B) pure monopoly. C) ruling monopoly. D) cost monopoly.
Local governments rely most heavily on
a. personal income taxes b. corporate income taxes c. estate taxes d. property taxes e. excise taxes
Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand
a. True b. False Indicate whether the statement is true or false