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Chris M., M.S.W. Social Work
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Experience:  Master's Degree, strong math and writing skills, experience in one-on-one tutoring (college English)
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Suppose that the investment demand curve in a certain

Customer Question

Suppose that the investment demand curve in a certain economy is such that investment declines by \$110 billion for every 1 percentage point increase in the real interest rate. Also, suppose that the investment demand curve shifts rightward by \$150 billion at each real interest rate for every 1 percentage point increase in the expected rate of return from investment. If stimulus spending (an expansionary fiscal policy) by government increases the real interest rate by 2 percentage points, but also raises the expected rate of return on investment by 1 percentage point, how much investment, if any, will be crowded out?
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Submitted: 1 year ago.
Expert:  Mr. Gregory White replied 1 year ago.

Hello, my name is Greg.

I see this might be time sensitive.

Do you still need this answered?

Customer: replied 1 year ago.
Expert:  Mr. Gregory White replied 1 year ago.

After going through my resources, I do not have what is necessary to complete at this time.

I am opting out and opening up to the other professionals and messaging a couple who might be able to help.

Someone should be with you shortly.

Expert:  Chris M. replied 1 year ago.

Hello, and thanks for the question.

The answer is \$70 billion. Investment declines \$220 billion due to the 2% interest rate increase, but increases (demand curve shifts rightward) \$150 billion from a 1% rise in expected rate of return. The net result is a \$70 billion decrease (crowding out) in investment.

Hope this helps!