This is a file upload question. Write down your solution in…
This is a file upload question. Write down your solution in a piece of paper, take a picture and upload your file. IMPORTANT: typed solutions will not be accepted! During the Trump years (before Covid-19), the unemployment rate for the US was around 4%, hence, we’re experiencing the so-called Natural Rate of Unemployment. Nonetheless, at that time, the government announced that in order to make the US economy to grow more, it was going to increase government spending and cut taxes. Economists argued that these type of actions would lead to a Crowding Out effect. In your words, explain what is crowding out. Use an example or describe the mechanism that connects private investment and interest rates. Why the government plans were not successful in that specific US economic situation. Draw an AD/AS diagram (remember to label graph and curves) showing the potential impact of these fiscal policies in the economy. What is the effect observed in the economy? Indicate in your graph!