Do a little research, then take a shot. What do you think?
Hint: draw IS and LM curves. What would the IS curve look (or how would it shift) if G was inversely related to r.)
If government spending (G) becomes negatively sensitive to changes in the interest rate, what effect does this have on autonomous consumption and planned investment that is crowded out? If autonomous taxes (Ta) become positively sensitive to changes in the interest rate, what effect does this have on the amount of autonomous consumption and planned investment that is crowded out?
1 answer