Answer to Question #219751 in Macroeconomics for Debbie

Question #219751

use the expression i=i-ci and the expression for equilibrium interest rate in the is-lm model to derive an expression that measures the crowding out component


1
Expert's answer
2021-07-26T07:38:02-0400

A contractionary fiscal policy, a decrease in government purchases or transfer payments, or tax increase has the opposite effect of crowding out based on the expression i=i-ci. Because of that the surplus is minimized, as well as government borrowing, which changes supply curve for bonds towards the left.


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