Question

After the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded toincrease by at each price level. the impact of an increase in government purchases on the interest rate and the level of investment spending is known as the effect.

Answer 1

The multiplier effect refers to the larger impact of an initial increase in spending on the equilibrium level of real GDP. It occurs when spending cycles through the economy, leading to multiple rounds of spending. An increase in government purchases affects the interest rate and investment spending.

Step-by-step explanation:

The subject of this question is Economics, specifically related to the multiplier effect and the impact of changes in government spending and investment on the quantity of output demanded.

The multiplier effect refers to the phenomenon where an initial increase in spending has a larger impact on the equilibrium level of real GDP. When government spending is increased, it circulates through the economy: households buy from firms, firms pay workers and suppliers, and so on, leading to multiple rounds of spending. This leads to a larger increase in output demanded than the initial change in spending amount.

Similarly, an increase in government purchases is known as the expenditure multiplier effect, as it has a larger impact on the interest rate and level of investment spending. As government purchases increase, it leads to higher demand for money and credit, pushing interest rates higher. This reduces borrowing by businesses and households, affecting consumption and investment spending negatively.

Answer 2

The appropriate response is Crowding out effect. It is a financial term alluding to government spending driving down private division spending and can have a few more particular implications. Swarming out can allude to when government getting assimilates all the accessible loading limit in the economy. This causes loan costs to rise.