When Contractionary Fiscal Policy Leads to

question 77

Multiple Choice

When contractionary fiscal policy leads to

• A) less private investment because of higher interest rates, the change in investment is called crowding in by economists.
• B) more private investment because of lower interest rates, the change in investment is called crowding in by economists.
• C) less private investment because of lower interest rates, the change in investment is called crowding in by economists.
• D) less private investment because of higher interest rates, the change in investment is called crowding out by economists.

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Definitions:

Exercise Option

An option in derivatives trading that allows the holder to buy or sell an asset at a predetermined price before or on a specific date.

Convertible

A type of financial security that can be changed into a different form, most commonly a bond that can be converted into shares of the issuing company.

Promised Yield

The return an investor is told to expect from a bond or other fixed-income security, assuming it is held to maturity and all payments are made as scheduled.

Bond A

A financial security that represents a loan made by an investor to a borrower, typically corporate or governmental, which pays interest at predetermined intervals.