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.
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Limiting net external wealth effects could be accomplished by limiting movements in the exchange rate. What measure might address this situation?
A) devaluing the currency B) keeping nominal interest rates exactly 1% higher than one's trading partners C) borrowing only in U.S. dollars D) pegging the exchange rate to the currency of the largest creditor nation
If the demand elasticity for corn in the current marketing is -0.5 and you know that the demand curve is linear and it goes through 10 billion bushels at a price of $5.00 per bushel, then if production turns out to be 12 billion bushels, the price of corn will be
A. $3.00 B. $4.00 C. $5.00 D. $6.00