According to the crowding-out effect, if the government runs a ...

[londonang]

According to the crowding-out effect, if the government runs a budget deficit of 100 billion, what is the change in the equilibrium quantity of investment?
 
  What will be an ideal response?

Question 2

Kyle and Stan are playing Odds or Evens, where Kyle is designated as the odd player and Stan is designated as the even player. They decide to play the game 10 times. The mixed-strategy equilibrium in this zero-sum game occurs when
 
  A) each player plays a pure strategy.
  B) one player plays a pure strategy and the other plays a mixed strategy.
  C) both players play their ideal mixtures.
  D) There is never an equilibrium in a zero-sum game.

[kiamars2010]

Answer to Question 1

Investment decreases. The government budget deficit increases the demand for loanable funds and, as a result, the real interest rate rises. The increase in the real interest rate decreases the quantity of investment. However, the decrease in investment is less than 100 billion because the higher real interest rate also increases the quantity of private saving.

Answer to Question 2

C

[londonang]

Excellent

[yeungji]

YES! Correct, THANKS for helping me on my review