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Explain Why Government Budget Deficits Crowd Out Private Investment Spending

question 80

Essay

Explain why government budget deficits crowd out private investment spending in a closed economy,but crowd out net exports in a small open economy.Assume prices are flexible and that factors of production are fully employed in both economies.Use the basic version of the open-economy model that abstracts from foreign debt accumulation.


Definitions:

Z-statistic

A type of standard score that indicates how many standard deviations an element is from the mean of its distribution.

Z-test

A statistical test used to determine whether there is a significant difference between the mean of a sample and the population mean, assuming the distribution is normal.

µ = 22

Represents a population mean of 22 in statistical notation.

Null Hypothesis

A hypothesis that there is no effect or no difference, and it is the statement that researchers aim to test against.

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