1. Which of the following will make crowding out caused by government borrowing more severe?
- A steep (inelastic) investment demand curve
- A global credit market
- Tax increases
- A steep (inelastic) supply curve in the loanable funds market
- None of the above
2. Crowding out could cause:
- reduced long-run growth.
- reductions in private investment.
- higher interest rates.
- greater returns to saving.
- All of the above
3. If the MPC = 0.80 and taxes are increased by $1,000, the Keynesian model predicts the change in equilibrium GDP will be:
- +$5,000.
- +$4,000.
- -$1,000.
- -$4,000.
- -$5,000.
4. If the economy is at full employment with an MPC of 0.90 and the government decreases taxes by $1,000, the resulting increase in output will be:
- less than $4,000.
- less than $5,000.
- less than $8,000.
- less than $9,000.
- more than $9,000.
5. Government spending policies can be developed to work against the problems of unemployment and inflation because government spending can:
- decrease aggregate demand to combat unemployment and increase aggregate demand to combat inflation.
- increase aggregate supply to combat unemployment and decrease aggregate demand to combat inflation.
- increase aggregate supply to combat unemployment and decrease aggregate supply to combat inflation.
- increase aggregate demand to combat unemployment and increase aggregate demand to combat inflation.
- increase aggregate demand to combat unemployment and decrease aggregate demand to combat inflation