Refer to the above figure. Suppose that the economy starts at ...

[cherise1989]

Refer to the above figure. Suppose that the economy starts at AD1. If the government reduces taxes, then the economy goes to AD2, but then falls back to AD1. This is an example of
 
  A) laissez-faire. B) partial crowding-out effect.
  C) the free rider problem. D) complete crowding-out effect.

Question 2

If s denotes savings rate, I denotes aggregate investment, and Y denotes GDP, then which of the following equations is correct?
 
  A) I = s  Y B) I =s/Y C) I = Y/s D) Y = s  I

[kescobar@64]

Answer to Question 1

D

Answer to Question 2

A