What Are Externalities

question 129

Multiple Choice

What are externalities?

• A)The extra cost involved in the packaging and marketing of a product.
• B)The additional costs of a product which cannot be recouped from the government.
• C)The extra cost to the consumers of a product in terms of maintenance and insurance.
• D)The benefits or costs of a product experienced by people who neither consume nor produce that product.

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Definitions:

Functional Finance

Functional finance is a theoretical approach to fiscal policy which holds that government budgets should be primarily evaluated on their effects on the economy rather than on principles of borrowing and debt.

Federal Budget

The annual financial statement presenting the government's proposed revenues and spending for a financial year.

Crowding In

An economic situation where increased government spending leads to an increase in private sector investment.

Crowding Out

A phenomenon where increased government spending leads to a reduction in private sector investment due to higher interest rates.