Answer:
Crowding out refers to a situation where an increase in government spending leads to a decrease in private investment. This can happen when the government borrows money to finance its spending, which can lead to higher interest rates and make it more expensive for businesses and households to borrow and invest.
(a) An expansionary monetary policy by the Federal Reserve would not necessarily lead to crowding out. In fact, it could have the opposite effect. When the Federal Reserve pursues an expansionary monetary policy, it increases the money supply and lowers interest rates. This makes it easier for businesses and households to borrow and invest, which can stimulate economic activity.
(b) If federal outlays exceed receipts when a large number of people leave the labor force to take advantage of a federal higher education grant, it could lead to crowding out. This is because the government may need to borrow money to finance its spending, which could lead to higher interest rates and make it more expensive for businesses and households to borrow and invest.
© If the government decreases taxes and increases spending by a greater amount, it could lead to crowding out. This is because the government may need to borrow money to finance its spending, which could lead to higher interest rates and make it more expensive for businesses and households to borrow and invest.
(d) If federal outlays exceed receipts by $40 billion but unemployment falls below NRU and the government collects $65 billion more in tax revenue than expected, it would not necessarily lead to crowding out. This is because the increase in tax revenue could help offset the increase in government spending, reducing the need for the government to borrow money. Additionally, if unemployment is below NRU, it suggests that the economy is operating at or near full capacity, so there may be less room for private investment to be crowded out.
Step-by-step explanation: