Increases in the Budget Deficit Are Believed to Cause Reductions

question 36

Essay

Increases in the budget deficit are believed to cause reductions in investment.Based on your understanding of the IS-LM model,will a fiscal policy action that causes a reduction in the budget deficit cause an increase in investment? Explain.

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Definitions:

Reification

Turning an abstract into a concrete thing—for example, assuming that because there are measures of intelligence, there is a unitary, tangible entity called intelligence.

Abstraction

The process of removing physical, specific details to focus on ideas or concepts at a more general, simplified level.

Real Thing

An authentic object or concept, as opposed to an imitation or reproduction.

Likert Scale

An interval scale on which respondents record their reactions to statements by checking their level of agreement between, for example, “strongly agree” and “strongly disagree.”