What is the crowding-out effect and how does it operate? What is its relationship to the Ricardo-Barro effect?
What will be an ideal response?
The crowding-out effect is the tendency for a government budget deficit to decrease investment. A government budget deficit increases the demand for loanable funds. If private savers do not change their saving, so that the private supply of saving does not change, a government budget deficit raises the equilibrium real interest rate and decreases the equilibrium quantity of investment. The Ricardo-Barro effect asserts that people change their private saving in response to a government budget deficit. In particular, when the government has a budget deficit, people increase their saving by the amount of the deficit. As a result, both the demand for loanable funds and the supply of loanable funds increase by the same amount so there is no impact on the equilibrium real interest rate or on the equilibrium quantity of investment.
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An economy that does NOT trade with the rest of the world is a(n)
A. open economy B. trade economy C. closed economy D. command economy
In a classical model
A) equilibrium real GDP is demand determined. B) equilibrium real GDP is neither determined by aggregate supply nor by aggregate demand. C) equilibrium real GDP is determined by both aggregate supply and aggregate demand. D) equilibrium real GDP is supply determined.
Ricardo likes to rent DVDs and attend concerts. The DVDs cost $4 and the concerts cost $40. Ricardo's marginal utility from the last DVD is 20 units. Ricardo is maximizing his utility. What is his marginal utility from the last concert he attended?
What will be an ideal response?
The demand for labor is considered a derived demand since it depends on
A) the supply of labor. B) the market for capital. C) the consumer demand for the output produced. D) competitive markets.