Re: Macro question

Posted by Dreyfus on Apr 22, 2014; 10:23am
URL: http://discussion-forum.276.s1.nabble.com/Macro-question-tp7587597p7587599.html

Tsuki..when we talk about crowding out then we refer only one point that is the effect of 'fiscal policy' on Investment spending.
Now as per the question ...in option a. There is monetary policy not fiscal therefore option a rules out
In option b..it only referring the IS relation alone that is it is not considering asset market
In option d....fiscal policy is there but again it only referring IS nd its affect on consumption
Now in option c.....there is fiscal exp....nd due to this IS will shift to the right but when Y* rises the demand for money also rises nd in order to clear the asset market the interest rate will rise nd this rise in interest rate will directly affect Investment spending as I increases the investment will decline leading to crowding out....