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Essay / Research Paper Abstract
This 13 page paper answers the following questions; 1. Will an increase in government spending in a closed economy contribute to crowding out in the private sector? 2. Can fiscal policy be an effective method of influencing short run levels of output if the investment demand curve is elastic? 3. Can there only be gains from trade between two countries if one of them has a higher productivity in all goods? 4. Will an increase in aggregate demand produce a permanent in the rate of long term economic growth? 5. Will a Philips curve shift in response to a change in inflationary expectations. The paper then discuses the following statements; “There will be no increase in the long term rate of economic growth resulting from an increase in the savings rate”, “The faster the rate of technical progress, the higher will be the rate of economic growth” and “Once the public sector accounts for 30% of GDP, further expansion is damaging to the rate of economic growth”. The bibliography cites 6 sources.
Page Count:
13 pages (~225 words per page)
File: TS14_TEcrowdqs.rtf
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Unformatted sample text from the term paper:
occurs when government increasing borrowing to finance budget deficits but the accuracy of the theory us uncertain. This may be seen as a contradictory reaction, but looking at the way
crowding out occurs this can be appreciated. When the government borrows funds this will increase interests rates in order to increase
the money supply (Nellis and Parker, 2000). Where the demand for any commodity exceeds demand there will be an increase in price, the price for borrowing money are the interest
rates. This increase will not be an issue for the government; they may use a range of tools to increase their revue to pay this interest rate, such as through
increasing taxes or possibly by increasing borrowing even further (Nellis and Parker, 2000). When the interest rates increase it is not only the
government that has to pay a higher rate, all companies which are, or want to borrow, will be impacted and have to pay higher interest rates. However, private firms do
not have the same options to increase revenue and in a closed economy they cannot look for external financing sources. There may also be an added impact as when interest
rates increase the exchange rate may also increase as a result of the way interest rates and exchange rates appear to be linked, which had add further costs to a
companys operations (Nellis and Parker, 2000). This later effect is not required to see the crowding out effect take place, it merely helps it as this damage a companys competitive
position and is likely to result in a decrease in the level of exports they make due to the relative costs being higher to purchasers. However, in a closed
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