Describe the crowding-out effect in government purchases

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Reference no: EM131443662

Answer the following questions:

a. Describe the crowding-out effect of an increase in government purchases.

b. Why does the magnitude of the crowding-out effect depend on how responsive interest rates are to increased government borrowing and how responsive investment is to changes in interest rates?

c. How would the size of the crowding-out effect affect the size of the change in aggregate demand that would result from a given increase in government purchases?

Reference no: EM131443662

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