Crowding Out Occurs When Investment Declines Because a Budget

question 166

Multiple Choice

Crowding out occurs when investment declines because a budget

• A)deficit makes interest rates rise.
• B)deficit makes interest rates fall.
• C)surplus makes interest rates rise.
• D)surplus makes interest rates fall.

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Definitions:

Diminishing Marginal Utility

The principle that as a person consumes more of a good, the satisfaction gained from consuming an additional unit decreases.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than others can produce it. Relative costs determine comparative advantage.

Marginal Utility

The additional satisfaction or benefit a consumer receives from consuming one more unit of a good or service.

Consumed

The act of using up a good or service, thus removing it from the market and contributing to economic activity.