The Crowding-Out Effect Indicates That Budget Deficits

question 24

Multiple Choice

The crowding-out effect indicates that budget deficits

• A) will stimulate aggregate demand and, therefore, exert a strong impact on output and employment.
• B) will lead to additional borrowing and higher interest rates that will reduce the level of private spending.
• C) are highly appropriate when the threat of inflation is present.
• D) are highly appropriate when the threat of recession is present.

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Definitions:

Direct Commands

Instructions given clearly and unequivocally, expecting immediate compliance.

Compliance

When people yield to social pressure in their public behavior, even though their private beliefs have not changed.

Obedience

The act of following the directives of authority figures.

Emergency

A sudden, urgent, usually unexpected occurrence requiring immediate action or attention.