Assume an economy is in a recession and the government increases deficit spending. Draw the market...

 

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Assume an economy is in a recession and the government increases deficit spending. Draw the market for loanable funds and identify what will happen to the real interest rates and the quantity of loans. Define crowding out and explain why deficit spending might not completely close the recessionary gap. Assume an economy is in a recession and the government increases deficit spending. Draw the market for loanable funds and identify what will happen to the real interest rates and the quantity of loans. Define crowding out and explain why deficit spending might not completely close the recessionary gap.

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In an economy experiencing a recession the market for loanable funds is characterized by a decrease in demand for loans due to decreased investment an... View the full answer