The impact of crowding out A) is larger in an open economy as ...

[lracut11]

The impact of crowding out
 
  A) is larger in an open economy as compared to a closed economy.
  B) is larger in a closed economy as compared to an open economy.
  C) is larger in an open economy as compared to a closed economy when fiscal policy is contractionary.
  D) is larger in a closed economy as compared to an open economy when fiscal policy is contractionary.

Question 2

How could the existence of an unemployment insurance system or other transfer programs have reduced the severity of the Great Depression?
 
  What will be an ideal response?

[prumorgan]

Answer to Question 1

A

Answer to Question 2

If these programs existed during the Great Depression, they would have mitigated its severity. In our economy today, workers laid off during a recession receive unemployment insurance payments. This extra income results in these workers spending more than they would have without these payments. In addition, households whose incomes fall below certain levels during recessions become eligible for food stamps and other programs. These transfers also help increase spending by these households. The increased spending happens automatically, stimulates aggregate demand, and helps stabilize the economy. These programs did not exist during the Great Depression. Workers who lost their jobs had their incomes drop to zero and had to rely on savings, charity, and borrowing to survive. These workers dramatically cut back on their spending. This contributed to making the economic slowdown worse.

[lracut11]

Gracias!

[yeungji]

TYSM