Explain the concept of "crowding in."
What will be an ideal response?
"Crowding in" occurs when a government decreases spending. If the level of output is fixed, when the government reduces spending, other spending components of GDP will increase. In a closed economy, consumption and investment could increase. In an open economy, consumption, investment and net exports could all increase.
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Which of the following increases the supply of a good and shifts its supply curve rightward?
A) a smaller number of producers B) an increase in the price of the good C) a higher wage paid to workers in the industry D) a technological advance in how the good is produced E) an increase in the cost of the resources used to produce the good
Suppose the government's budget deficit increases by $500 billion. If there is no Ricardo-Barro effect, what occurs?
A) The supply of loanable funds curve shifts leftward, the real interest rate rises, and the quantity of loanable funds decreases. B) The supply of loanable funds curve shifts rightward, the real interest rate falls, and the quantity of loanable funds increases. C) The demand for loanable funds curve shifts rightward, the real interest rate rises, and the quantity of loanable funds increases. D) The demand for loanable funds curve shifts leftward, the real interest rate falls, and the quantity of loanable funds decreases. E) The supply of loanable funds curve shifts leftward, the real interest rate rises, and the quantity of loanable funds increases.