The Crowding-Out Effect Is Caused by

question 6

Multiple Choice

The crowding-out effect is caused by

• A) an increase in the money supply increases the demand for goods and services, and thus crowds out investment.
• B) an increase in government purchases reduces the demand for goods and services, and thus crowds out investment.
• C) an increase in consumer income increases the demand for goods and services, and thus crowds out investment.
• D) an increase in government purchases increases the demand for goods and services, and thus crowds out investment.

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Definitions:

Trade Embargoes

Government-imposed restrictions on the exchange of goods and services with a particular country or group of countries.

USMCA

The United States-Mexico-Canada Agreement, a free trade agreement between these three countries that replaced NAFTA.

NAFTA

The North American Free Trade Agreement is a treaty between Canada, Mexico, and the United States that eliminated most tariffs on trade between these nations, aiming to increase economic integration.

Trade Agreement

A treaty between two or more countries to outline how they will work together to ensure mutual benefit in trade, often involving tariff reductions, import quotas, and other trade incentives.