If a 200 Billion Dollar Increase in Government Spending Occurs

question 92

Multiple Choice

If a 200 billion dollar increase in government spending occurs when the Fed seeks to maintain a fixed interest rate then

• A)there is no crowding out,the LM curve shifts to offset the shift in the IS curve.
• B)there is no crowding out,the monetary policy is fixes as is the LM curve fixed.
• C)crowding out is assured since monetary policy is fixed.
• D)crowding out is assured since the Fed will accommodate the spending increases.

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Definitions:

Private Goods

Products and services that are excludable and rivalrous, meaning only paying customers can consume them, and one person's consumption prevents another's.

Government Failures

occur when government action results in outcomes that fail to achieve desired welfare improvements or when the intervention leads to an inefficient allocation of resources.

Economic Efficiency

A situation in which all resources are allocated optimally to serve each individual or entity in the best way while minimizing waste and inefficiency.

Public Sector

Part of the economy composed of both public services and public enterprises, owned and operated by the government.