Suppose economists observe that an increase in government spending of $13 billion raises the total demand for goods and services by $65 billion. 1. if these economists ignore the possibility of crowding out, what would they estimate the marginal propensity to consume (mpc) to be? round your answer to the nearest one hundredth. 2. now suppose the economists allow for crowding out. would their new estimate of the mpc be larger or smaller than their initial one?

Assume that the following conditions exist: a. all banks are fully loaned up- there are no excess reserves, and desired excess reserves are always zero. b. the money multiplier is 5 .     c. the planned investment schedule is such that at a 4 percent rate of interest, investment =$1450 billion. at 5 percent, investment is $1420 billion. d. the investment multiplier is 3 . e.. the initial equilibrium level of real gdp is $12 trillion. f. the equilibrium rate of interest is 4 percent now the fed engages in contractionary monetary policy. it sells $1 billion worth of bonds, which reduces the money supply, which in turn raises the market rate of interest by 1 percentage point. calculate the decrease in money supply after fed's sale of bonds: $nothing billion.