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Given the current state of the economy, would you expect crowding out or crowding in to dominate today?

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Yusra Anees
Yusra AneesLv10
28 Sep 2019

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Related questions

1. (10 points What are the key channels by which fiscal policy affects output in a closed versus open economy? Using the models studied in class, discuss what is meant by “crowding out”, and how the crowding out effect works in an open economy. How does this effect differ to the way it works in a closed economy? To what extent does the efficacy of fiscal policy depend on the type of exchange rate regime?

When enacting fiscal policy, the form such policies take is often at issue - should we enact fiscal policy by lowering taxes or increasing spending? There are many points of view on either side of the spectrum.

- How do tax cuts affect GDP?

- Do tax cuts have the same impact on GDP as an equal increase in spending? Why or why not?

- Expansionary fiscal policy involves deficit spending. What is crowding out? Describe the harmful impact of the crowding-out effect on the economy.

Suppose that a closed economy called Cheeseland is in recession. The government is considering using fiscal policies to stimulate the economy. Assume that there is no crowding out of investment, the marginal propensity to consume (MPC) is 0.80, and shifting the aggregate demand curve rightward by $200 million would end the recession.

a) Determine the value of the multiplier.

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