Homework Answers
1. Option C is correct!!.
Crowding out effect happens when increase in government expenditure leads to shortage of loanable funds in the market. This effect leads to increase in interest rates. Hence Option C is correct!!
All other options are incorrect, as there will br no effect on multiplier.
2.
Due to increase in aggregate demand in short run, prices and real GDP both will increase. This relationship can be seen in the below diagram as well.
Hence Option C is correct!!
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