Question 3 15 pts Consider the medium run You should assume

Question 3 1.5 pts Consider the medium run. You should assume there is no liquidity trap. Start from a medium run equilibrium. Assume that the central bank will pursue policies to keep the economy at full employment (at the natural unemployment rate) Suppose you are the newly-elected President Trump. During your campaign, you promised voters that you would do everything in your power to get investment to grow. Suppose investors care only about the short run. True or false. Investors would prefer a decrease in government spending rather than an increase in government spending O True O False

Solution

a) Investors will prefer a decrease in government spending because increased government spending also increase the interest rates and at a higher rate the profit of investors decrease. The statement is \"True\", they will look to avoid the crowding out effect.

b) Both the questions are same.