Which of the following statements about the effects of an increase in government purchases is most accurate?
a. In the classical model, it will cause complete crowding out. In the short-run macro model, crowding out will be incomplete.
b. In the classical model, it will cause incomplete crowding out. In the short-run macro model, crowding out will be complete.
c. Crowding out will be complete in both the classical and short-run macro model.
d. Crowding out will be incomplete in both the classical and short-run macro model.
e. In the classical model, the increase in government spending will lead to a decrease in investment spending and autonomous consumption. In the short-run macro model, it will not.
A
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Refer to the table above. The relative price of beer in terms of wine in B is
A) $4.50. B) 2. C) 4.5. D) $2.00.
Suppose the equilibrium level of income exceeds the full employment level of income and there is high inflation. Hence, the government decides to implement a fiscal policy that will act to reduce national output and prices. This can be accomplished by:
a. increasing government spending such that aggregate expenditures are increased. b. raising taxes and government spending by the same amount such that aggregate supply is decreased and aggregate demand is increased. c. decreasing government spending such that aggregate demand is reduced. d. lowering average tax rates such that aggregate supply is increased. e. increasing transfer payments such that aggregate expenditures decline.