Crowded out as result of increase in government spending

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Reference no: EM13796913

a. Use the algebraic form of the aggregate demand curve to find the level of GDP that occurs when the money supply is $900 billion and government spending is $1200 billion.

b. Use the IS curve and LM curve to find the interest rate that occurs in this situation. Explain why you get the same answer in each case.

c. Use the consumption function to find the level of consumption, the investment function to find the level of investment, and the net export function to find the level of net exports for this situation.

d. Show that the sum of your answers for consumption, investment, and government spending, and net exports equals GDP.

e. Repeat all the previous calculations if government spending increased to $1300 billion. How much investment is crowded out as a result of the increase in government spending? How much are net exports crowded out?

Reference no: EM13796913

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