The Crowding-Out Effect Suggests That

question 52

Multiple Choice

The crowding-out effect suggests that:

• A)increases in consumption are always at the expense of saving.
• B)increases in government spending will close a recessionary gap.
• C)increases in government spending may raise the interest rate and thereby reduce investment.
• D)high taxes reduce both consumption and saving.

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Definitions:

Capital Investment

Funds spent by a firm to acquire or upgrade physical assets such as property, industrial buildings, or equipment.

Net Cash Flows

The difference between a company's cash inflows and cash outflows within a specific period.

Net Present Value

A method of evaluating investment opportunities that calculates the difference between the present value of cash inflows and outflows over a period of time.

Capital Expenditure

Funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.