Author Question: Why will there be less crowding out of private spending by government spending the less sensitive ... (Read 143 times)

oliviahorn72 · **on:** Jun 29, 2018

Why will there be less crowding out of private spending by government spending the less sensitive consumption, investment, and net exports are to changes in interest rates?

What will be an ideal response?

Question 2

Saving exceeds domestic investment in Japan, which generates a financial account deficit in Japan's balance of payments.

Indicate whether the statement is true or false

scrocafella · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Crowding out occurs when the increase in government spending increases real GDP and income which increases money demand, pushing up interest rates. The higher interest rates decrease (crowd out) private spending consumption, investment, and net exports. The less sensitive consumption, investment, and net exports are to interest rates, the less they decrease as a result of the higher interest rates.

Answer to Question 2

TRUE