Consider a Closed-Economy AD/AS Macro Model

question 35

Multiple Choice

Consider a closed-economy AD/AS macro model.A policy-induced increase in the government's budget deficit is most likely to crowd-out private investment if

• A)interest rates decrease sharply as a result of the deficit.
• B)interest rates rise sharply as a result of the deficit.
• C)rising income increases the volume of saving and interest rates rise very little.
• D)there is a very large output gap.
• E)consumers reduce consumption as a result of the deficit.