Question
For each of the following scenarios, indicate if it would necessarily lead to crowding out or not, and explain your reasoning. Assume a closed economy.
For each of the following scenarios, indicate if it would necessarily lead to crowding out or not, and explain your reasoning. Assume a closed economy.
(a) Congress passes a bill that requires an annual balanced federal budget. The government moves from a fiscal deficit to a balanced budget.
(b) Assume the federal budget is balanced when an increase in retirees rapidly expands those collecting Social Security retirement benefits at the same time that it decreases tax revenues from personal income taxes.
(c) Assume that fiscal receipts equal outlays when the Federal Reserve increases the discount rate.
(d) Assume that federal receipts exceed outlays by $70 billion when a recession occurs. The government collects $90 billion less in tax revenue than expected.
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