Question

52. ​"Crowding out" refers to the decrease in​ ________ that may result from an increase in government spending.

A.imports

B.private investment

C.private saving

D.all of the above

E.none of the above

53.If taxes​ increase, private saving​ __________, government saving​ __________, and national saving​ __________.

A.does not​ change; increases; increases

B.​increases; increases; increases

C.​decreases; increases; does not change

D.​decreases; increases; increases

54.The velocity of money​ ________.

A.times the money supply should equal total income according to the equation of exchange

B.represents the average number of times a dollar turns over through the year

C.provides the link between the money supply and nominal income

D.all of the above

E.none of the above

Answer 1

When government faces budget deficit due to higher government expenditure for increasing aggregate demand, then for financing these deficits, government borrow from loanable fund market. As a result, demand for loanable fund increases, so demand curve shifts rightward. Hence real interest rate increases. At higher interest rate private investment spending decrease. So the extra government expenditure done by the government diminishes for increasing aggregate demand. This is known as the crowding out.

Crowding out" refers to the decrease in​ private investment that may result from an increase in government spending.

Hence option B is the correct answer.

53.

If taxes​ increase, private saving​ decreases, government saving​ increases, and national saving​ does not change.

This is because National saving is sum of private saving and public saving. So with the increase in the tax, the saving of government increases and saving of private individual decreases.

Hence option C is the correct answer.

54.

= real GDP

The velocity of money can be defined as number of times one unit of money is used to buy domestically- produced goods and services in a given time period.

MV=PY

V=PY/M

It means that the velocity of money times the money supply should equal total income according to the equation of exchange. It also represents the average number of times a dollar turns over through the year.

The velocity of money provides the link between the money supply and nominal income.

It means first three options are correct.

​

Hence option D is the correct answer.