According to the Crowding-Out Effect, How Do the Interest Rate

question 97

Multiple Choice

According to the crowding-out effect, how do the interest rate and investment spending change when government spending increases?

• A) The interest rate and investment spending both increase.
• B) The interest rate increases and investment spending decreases.
• C) The interest rate decreases and investment spending increases.
• D) The interest rate and investment spending both decrease.

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Definitions:

Times Interest Earned

A financial ratio that measures a company's ability to meet its debt obligations based on its earnings before interest and taxes (EBIT).

Income Statement

A financial statement that shows a company's revenues and expenses, ultimately revealing the net profit or loss for a specified period.

Accounts Receivable Turnover

A financial ratio that measures how many times a business can turn its accounts receivable into cash during a period.

Equity Multiplier

A financial ratio that measures a company's leverage by comparing total assets to shareholders' equity, illustrating the extent to which a company is financed by debt.