The Crowding Out Effect of Fiscal Policy Refers To

question 200

Multiple Choice

The crowding out effect of fiscal policy refers to:

• A) the decrease in private spending as a result of higher government spending.
• B) the decrease in real GDP growth as a result of higher government spending.
• C) how more federal government spending affects the sizes of state and local governments.
• D) the increase in tax revenues as a result of an increase in government spending.

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Definitions:

Decreasing-Cost Industry

An industry characterized by a downward-sloping long-run supply curve, indicating lowering costs as industry output increases.

Increasing-Cost Industry

An industry in which production costs increase as output expands, often due to scarce resources or rising input prices.

Industry Expands

The process of a sector in the economy growing due to an increase in demand, production, and often, employment.

Allocative Efficiency

A state of the economy where the distribution of resources among different uses is optimal, ensuring that the goods being produced are what consumers prefer the most.