|Question||a. Starting from this initial position, the economy is hit by one shock: a large decrease in government purchases perhaps caused by the end of a war. Holding the growth of C, I, and X constant for a moment, illustrate this shock, labeling the change â??Fall in growth of G.â?
b. Now consider a possible side effect of the fall in the growth of G: the reversal of crowding out or crowding in. If there is 100% â??crowding in,â? what happens to the AD shift you described in part a?
c. If there were 100% crowding out/in and no multiplier effect, what can we say about the effect of a change in the growth of G on aggregate demand?
d. Consider all of the laid-off government workers in this question: If there were 100% crowding out/in and no multiplier effect, where do these laid-off workers end up?