Ap macroeconomics Exam: Course Study Guide [ unit I ] What is economics?
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[Crowding Out]: (cont.)
2
(B)
S
LF
THE
“TRUTH”
G
deficit
S
LF
r
,
r
I
,
I
AD
Financing
PL (P
1
-P
2
)
rGDP (Y
1
-Y
*
)
E (Y
1
-FE)
UE (Y
1
-FE)
(the increase in r leads to a decrease in the quantity of interest sensitive investment demanded)
The final
position of AD is between AD
1
and AD
2
.
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highest level
opportunity cost
systematic study
possible combinations
trade-offs
basic problem
deficit SLF r , r I , I AD
