Suppose that economists observe than an increase in government spending of $6 billion raises total demand for goods and
Posted: Thu May 19, 2022 10:50 am
Suppose that economists observe than an increase in government spending of $6 billion raises total demand for goods and services by $16 billion.
(a) If these economists ignore the possibility of crowding out, what would they estimate the marginal propensity to consume (MPC) to be?
(b) Now suppose the economists allow for crowding out. Would their new estimate of the MPC be larger or smaller than the initial level? Explain your answer.
(a) If these economists ignore the possibility of crowding out, what would they estimate the marginal propensity to consume (MPC) to be?
(b) Now suppose the economists allow for crowding out. Would their new estimate of the MPC be larger or smaller than the initial level? Explain your answer.