Describe the crowding-out effect of an increase in govt

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Describe the crowding-out effect of an increase in government purchases. 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? 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: EM13204577

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