Suppose That the Government Spends More on Building New Schools

question 46

Essay

Suppose that the government spends more on building new schools. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

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Definitions:

Rational Choice Theories

Rational choice theories are based on the premise that individuals make decisions by calculating the costs and benefits of various actions to maximize their personal advantage.

Coterminous

means sharing the same boundaries or extent in space, time, or meaning.

Exchange Theory

A theoretical framework suggesting that social behavior is the result of an exchange process aiming to maximize benefits and minimize costs to individuals.

Rational Choice Theory

A framework for understanding and often formally modeling social and economic behavior based on the assumption that individuals act on rational self-interest.