When the Economy Is Producing Its Potential Output, an Increase

question 68

Multiple Choice

When the economy is producing its potential output, an increase in government spending must necessarily reduce some component of private spending. This phenomenon is called

• A) fiscal policy.
• B) crowding out.
• C) the multiplier effect.
• D) entitlement spending.

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Definitions:

Current Profitability

A measure of a company's financial performance in the short term, often evaluating the income it generates over a recent period against the expenses.

Intermediate Products

Goods that are produced in one manufacturing process but are used as inputs in another, not yet final products.

Common Input

A resource, such as raw materials or labor, that is shared among different processes or production lines within manufacturing or service delivery.

Further Processing

Additional operations carried out on a product to enhance its value before final sale.