-Refer to the Above Figure

question 198

Multiple Choice

-Refer to the above figure. If the economy is at E and the government wants to increase aggregate demand to , but the increase in spending only shifts the aggregate demand curve to , then

• A) complete crowding out has occurred.
• B) some crowding out has occurred.
• C) the increased borrowing caused interest rates to fall.
• D) the short-run aggregate supply curve is steeper than the figure indicates.

Comprehend the relationship between tax credits for investment and shifts in the demand for loanable funds and supply of dollars in the foreign-currency exchange market.

Recognize the effects of capital flight on demand for loanable funds, supply of dollars, and net capital outflows in the foreign-currency exchange market.

Analyze the impact of a government default on its debt on the country's real interest rates and currency valuation in the open-economy macroeconomic model.

Identify how capital flight influences the market for foreign-currency exchange.

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Definitions:

Economists

Experts in economics who study, develop, and apply theories and concepts about how economies work and distribute resources.

Polluting

The act of discharging harmful substances into the environment, negatively affecting air, water, and soil quality.

Fee

An amount of money charged for a particular service or as a payment for a right or privilege.

Pigovian Tax

A tax imposed on activities that generate negative externalities, intended to correct an inefficient market outcome by being equal to the social cost of the externalities.