The Crowding-Out Effect Occurs When an Expansionary Fiscal Policy Increases

question 205

True/False

The crowding-out effect occurs when an expansionary fiscal policy increases the interest rate, decreases investment spending, and weakens fiscal policy.

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Definitions:

Marginal Cost

The cost incurred by producing one additional unit of a product or service.

Output

The total amount of goods or services produced by an individual, company, or economy during a specific period.

Negative Marginal Returns

Occurs when adding an additional factor of production actually decreases the total output, which can happen when there is too much input for the available resources or technology.

Input

Resources used in the production process to create goods or services, including labor, raw materials, and capital.