Describe the long-run impact of a decline in defense spending by 1 percent of GDP on interest rates and on consumption, investment, and net exports as a share of GDP. Consider the following case:

The funds saved from the defense cut are used to increase government expenditures on roads and bridges.

Select all that are true.

Responses

There is no effect.
There is no effect.

NG/Y* increases as the real interest rate declines.
NG/Y* increases as the real interest rate declines.

The increases in C/Y, I/Y, and X/Y* depend on the sensitivity of each to the interest rate.
The increases in C/Y, I/Y , and X/Y* depend on the sensitivity of each to the interest rate.

All of the variables increase as the real interest rate declines.

Question

21-09-2022
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Describe the long-run impact of a decline in defense spending by 1 percent of GDP on interest rates and on consumption, investment, and net exports as a share of GDP. Consider the following case:

The funds saved from the defense cut are used to increase government expenditures on roads and bridges.

Select all that are true.

Responses

There is no effect.
There is no effect.

NG/Y* increases as the real interest rate declines.
NG/Y* increases as the real interest rate declines.

The increases in C/Y, I/Y, and X/Y* depend on the sensitivity of each to the interest rate.
The increases in C/Y, I/Y , and X/Y* depend on the sensitivity of each to the interest rate.

All of the variables increase as the real interest rate declines.

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homiefatcow12345 homiefatcow12345 · Answer 1 · 2022-09-22T09:02:54+02:00

Answer:

The long-run impact of a decline in defense spending by 1 percent of GDP on interest rates and on consumption, investment, and net exports as a share of GDP would be an increase in NG/Y* as the real interest rate declines. The increases in C/Y*, I/Y*, and X/Y* would depend on the sensitivity of each to the interest rate. All of the variables would increase as the real interest rate declines.

Explanation:

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