In a Neoclassical Economy, If Consumption Increases as the Interest

question 113

Multiple Choice

In a neoclassical economy, if consumption increases as the interest rate decreases, then a $10 billion rise in government spending would:

• A) still crowd out exactly $10 billion of investment.
• B) crowd out between zero and $10 billion of investment.
• C) not crowd out any investment.
• D) crowd out more than $10 billion of investment.

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Definitions:

Benevolent Social Planner

A theoretical construct representing an entity or policymaker that aims to achieve the most efficient and equitable outcomes for society as a whole, often seen in economic models.

Socially Efficient

A condition where resources are allocated in a way that maximizes the overall benefit to society, taking into account all externalities.

Marginal Revenue

The additional income obtained from selling one more unit of a good or service, critical in determining the optimal level of production for a firm.

Profits Maximize

The process or strategy by which a firm seeks to achieve the highest possible return or benefit from its operations and resources.