Question

In an open​ economy, if the United States government were to purchase computer​ paper; according to the crowding out​ effect,

A.

the​ government's purchase of computer paper means they can not purchase new telephone systems.

B.

there would be less paper available for consumers to use resulting in either a decrease in paper exports or an increase in paper imports.

C.

the government restricts the sale of all paper that is not bought directly from the government.

D.

there will be no impact on consumer spending.

Answer 1

=> ANSWER :: (B) There Would Be Less Paper Available for Consumers to use resulting in either a decrease in paper exports or an increase in paper imports.

=> Explanation ::

=> In Open Economy Not Only Domestic People But Also Foreign Businessman Also Interfere In Domestic Country Trade

=> Crowding Out Effect Occur When Personal Expenses and Investment By Businessman Reduced in The Domestic Country Because Of Government Spending This Leads to Move Financial Resource From Domestic Country and Increase Interest Rates.

=> In This Situation Where United State Government Purchase Computer Paper According to The Crowding Out Effect It Makes Businessman To Reduce Their Investment In Computer Paper And Government Control The Export Of Computer Paper Or They Will Increase Its Import By This Kind Of Spending. By This Effect Government Reduce Private Sector Investment In The Country.

=> So We Assume That By Crowding Out Effect Government Control Demand and them It Reduce The Private Sectors Investment In the Country. To Fix The Crowding Out Effect Government Have to Use Contractionary Fiscal Policy to cut government Spending And Control Crowding Effect.