The Crowding-Out Effect Suggests That

question 73

Multiple Choice

The crowding-out effect suggests that

• A) expansionary fiscal policy causes inflation.
• B) restrictive fiscal policy is an effective weapon against inflation.
• C) a reduction in private spending that results from higher interest rates caused by a budget deficit will largely offset the expansionary effects of the deficit.
• D) a tax reduction financed by borrowing will increase the disposable income of households and, thereby, lead to a strong expansion in aggregate demand, output, and employment.

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