Consider a Closed- Economy AD/AS Macro Model

question 59

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

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Definitions:

Deductive Reasoning

The use of general principles to predict specific outcomes. Often uses “if… then” statements.

Technology

The application of scientific knowledge for practical purposes, especially in industry.

Chemicals

Substances produced by or used in a chemical process, including both natural and synthetic materials.

Ecosystem

A group of living beings interacting with the nonliving elements of their surroundings, functioning together as a system.