Crowding out Quiz

What is “Crowding Out”? Quiz

Bonds in Monetary Policy:

1.       If the economy is suffering from a recession, the __1___ will ____2______ bonds.  This will move money from the government to the public.

2.      On the Money Market Graph, show the change by moving the _____3_______ line.

3.      This will create a ________4_____________ interest rate, therefore helping ____5____.

4.      This will improve __6__ on the Aggregate Model Graph.

Bonds in Fiscal Policy:

5.       If the economy is suffering from a recession, _____7_____ will ____8_____ taxes or ____9_______ government spending, or do both.

6.      This policy will increase __10____ and ___11____ as parts of AD.

7.      However, it is assumed that this policy will affect the federal budget.  If the government income ___12_______ due to tax ___13____, and expenditures ____14_______, then a budget ____15_______ will occur.

8.      Government will now have to __16_____ bonds.

Money Market Graph:

9.       If Monetary Policy actions move the __17____ line, then Fiscal Policy actions will move the __18_____ line.

10.  When Congress causes this line to move, it will move _____19________.

11.  As a result, the interest rate will ____20_______.

Loanable Funds Graph (Private Savings Graph):

12.   Deficit spending will cause the ____21_______ line to move outward.

13.   Deficit spending will cause the _____22______ line to move inward.

14.  Either way, the interest rate will _____23_________.

Investment Demand Graph:

15.   Higher interest rates will cause the quantity of investment demand funds to ___24______.

16.  This will _____25_____ Ig, as a component of AD.

17.  If a Private Savings (Supply) line is shown on this graph, then deficit spending will move this line ____26________.

Aggregate Model Graph:

18.   The initial fiscal policy increases in _27____ and _28____ will cause AD to move ___29_____.

19.  However, the reduction of _30___ will cause AD to move ____31_____, but not all the way back to the original, recessionary position.

20.  Keynesians believe this because the ___32_____ is more important than the ____33______.