4. Suppose economists observe that in a closed economy an increase in government spending of $10 billion

Question:

4. Suppose economists observe that in a closed economy an increase in government spending of $10 billion raises the total demand for goods and services by $30 billion.

a. If these economists ignore the possibility of crowding out of investment, what would they estimate the marginal propensity to consume (MFC) to be?

b. Now suppose the economists allow for crowding out. Would their new estimate of the MFC be larger or smaller than their initial one?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Principles Of Macroeconomics

ISBN: 9780176591977

7th Canadian Edition

Authors: N. Mankiw, Ronald Kneebone, Kenneth McKenzie

Question Posted: