Macro 2010 FRQ #1- AD/AS and Loanable Funds

The video tutorial covers a 2010 economics question, focusing on aggregate demand, fiscal policy, and the loanable funds market. It explains the effects of increased government spending on unemployment and GDP, the transition from short-run to long-run equilibrium, and the impact of deficit spending on the loanable funds market. The tutorial also discusses the crowding out effect, where increased government borrowing raises interest rates, reducing private investment and future economic growth.

What happens to the unemployment rate when government spending increases?

• Unemployment rate fluctuates randomly

• Unemployment rate remains unchanged

• Unemployment rate decreases

• Unemployment rate increases

In the long run, what causes the aggregate supply curve to shift to the left?

• Increase in resource prices and wages

• Decrease in government spending

• Increase in consumer demand

• Decrease in resource prices and wages

What is the effect of government deficit spending on the loanable funds market?

• Increases demand for loans

• Increases supply of loans

• Decreases real interest rates

• Decreases demand for loans

How does an increase in real interest rates affect business investment?

• Decreases business investment

• Increases business investment

• Has no effect on business investment

• Leads to more government spending

What is the crowding-out effect?

• Government spending has no effect on private investment

• Lower interest rates increase private investment

• Higher interest rates reduce private investment

• Government spending increases private investment