The "Crowding-Out Effect" Suggests That

question 38

Multiple Choice

The "crowding-out effect" suggests that:

• A)tax increases are paid primarily out of saving and therefore are not an effective fiscal device.
• B)increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.
• C)it is very difficult to have excessive aggregate spending in our economy.
• D)consumer and investment spending always vary inversely.

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Definitions:

Prepaid Freight

Costs paid by a shipper in advance for shipment of goods, indicating that the sender bears the freight charges.

Cash Discount

A reduction in the invoice price offered to buyers as an incentive for early payment.

Wholesalers

Companies that sell merchandise to other businesses rather than to the public.

Credit Terms

Terms for payment on account by the buyer to the seller.