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Question 4 [10] Changes in the monetary sector are transmitted to the real sector through a transmission mechanism. Suppose government tries to stimulate the economy

Question 4 [10] Changes in the monetary sector are transmitted to the real sector through a transmission mechanism. Suppose government tries to stimulate the economy by increasing government expenditure G. The subsequent chain reaction exhibits two (2) distinct effects known as crowding out. Use the Keynesian model (chain reactions and graph) to illustrate and explain the concept known as crowding out. Clearly indicate the primary, secondary and net effect of increased government expenditure.

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