Economics 13th Edition by James Gwartney, Richard Stroup, Russell Sobel, David Macpherson

Exercise 9

What is the crowding-out effect? How does it modify the implications of the basic Keynesian model with 1. Suppose that you are a member of the Council of Economic Advisers. The president has asked you to prepare a statement on the question, "What is the proper fiscal policy for the next twelve months?" Prepare such a statement, indicating (a) the current state of the economy (that is, the unemployment rate, growth in real income, and rate of inflation) and (b) your fiscal policy suggestions. Should the budget be in balance? Explain the reasoning behind your suggestions.