A. Use a graph and a written explanation to demonstrate how the level of investment is...

Question:

A. Use a graph and a written explanation to demonstrate how the level of investment is determined.

B. Explain what happens when the government enters the loanable funds market.

C. When is the crowding-out effect most severe? Explain.

D. Describe the balanced-budget multiplier, and explain what happens when both taxation and spending are increased by 100.

E. The classical model assumes wages and prices are free to adjust to conditions. Keynes argued that prices and wages are sticky. List three reasons why wages and prices are sticky.

Goods Market:

In the goods market, the IS curve shows the inverse relationship between the interest rate and output such that as the interest rate decreases then the output increases and as the rate of interest increases then the output decreases shows that IS curve is downward sloping and it has a negative slope.

Answer and Explanation: 1

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A) The investment is determined by the rate of interest such that as the rate of interest increases then the investment decreases and as the rate...

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What is Fiscal Policy?

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Chapter 14 / Lesson 3
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Fiscal policy is a mechanism used by the U.S government to control the economy by raising taxes or choosing how to spend money on investments. Learn more about the meaning, usage and criticisms of U.S fiscal policy.


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