The Table Gives Data on Interest Rates and Investment Demand

question 62

Multiple Choice

The table gives data on interest rates and investment demand (in billions of dollars) in a hypothetical economy. Refer to the above table. Using the I_d1 schedule, assume that the government needs to finance the public debt and this public borrowing increases the interest rate from 3% to 4%. How much crowding out of private investment will occur?

• A) $100 billion
• B) $200 billion
• C) $600 billion
• D) $700 billion

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Definitions:

Glycolysis

A metabolic process that breaks down carbohydrates and sugars through a series of enzymatic reactions to produce pyruvate, ATP, and NADH.

Reduction Reaction

A chemical reaction that involves the gain of electrons or the decrease in oxidation state by a molecule, atom, or ion.

Carbon Dioxide

Produced during the burning of carbon and organic matter as well as through the respiration process, this odorless, colorless gas is a natural part of the atmosphere and essential for photosynthesis in plants.

NAD+

(Nicotinamide Adenine Dinucleotide) Coenzyme in oxidation-reduction reactions that accepts electrons and hydrogen ions to become NADH + H+ as oxidation of substrates occurs. During cellular respiration, NADH carries electrons to the electron transport chain in mitochondria.