Why will there be less crowding out of private spending by government spending the less sensitive consumption, investment, and net exports are to changes in interest rates?
What will be an ideal response?
Crowding out occurs when the increase in government spending increases real GDP and income which increases money demand, pushing up interest rates. The higher interest rates decrease (crowd out) private spending — consumption, investment, and net exports. The less sensitive consumption, investment, and net exports are to interest rates, the less they decrease as a result of the higher interest rates.
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Nobody needs soda. So why do people drink it?
A) They deny the data and believe they really do need soda. B) The expected additional benefits of another soda outweigh the additional costs. C) There are no substitutes for soda. D) Soda is a good for the people who consume it, and therefore they will drink it at any price.
Classical macroeconomists argue that the short-run Phillips curve ________ represent a usable trade-off for policymakers because ________
A) does; people have rational expectations B) does; people do not have rational expectations C) does not; people do not have rational expectations D) does not; people have rational expectations
Tax wedge is the difference between tax induced price paid by customer and the tax amount
A. True B. False C. Uncertain
Figure 19.1 displays changes in the size of private inventories. Based on the figure, in which month is the size of private inventories likely to have been lowest?
A) September 2010 B) September 2011 C) September 2009 D) March 2010