1. When the economy operates at full employment, an increase in government spending must crowd out consumption. ___________ (True/False)
2. A(n) ________ economy is open to trade, whereas a closed economy is not.
3. In an open economy, increases in government spending can crowd out consumption, investment, or______________.
4. Compared to other countries, China has a relatively ______________ share of consumption spending in GDP.
5. An Investment Boom in an Open Economy. Suppose the government provides additional incentives for investment in new plant and equipment and investment spending increases. Consumption and government purchases remain the same. In an open economy, what must happen to allow this investment increase?
6. Consumption or Investment Crowding Out? Suppose local governments in suburban communities around the country started building large community swimming pools. Explain what type of spending this might crowd out. Compare this to the effect of government spending on exploration of Mars.
7. Marital Gifts and Savings. In Japan, it is a custom for the bride s family to give a gift having very large monetary value to the family of the groom. How might this affect the savings rate in Japan?