Which of the Following Correctly Explains the Crowding-Out Effect

question 169

Multiple Choice

Which of the following correctly explains the crowding-out effect?

• A)An increase in government expenditures decreases the interest rate and so increases investment spending.
• B)An increase in government expenditures increases the interest rate and so reduces investment spending.
• C)A decrease in government expenditures increases the interest rate and so increases investment spending.
• D)A decrease in government expenditures decreases the interest rate and so reduces investment spending.

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Definitions:

City Council

The legislative body that governs a city, town, municipality, or local government area.

Incentives

Refer to factors that motivate or encourage individuals to perform an action or behave in a specific manner.

Extra-Credit Assignment

An additional task given to students that goes beyond the required coursework, offering an opportunity to earn more points towards their grade.

Incentives

Rewards or penalties that motivate individuals to pursue certain actions or behaviors.