If the Crowding-Out Effect Is at Its Maximum Strength, It

question 86

Multiple Choice

If the crowding-out effect is at its maximum strength, it follows that an increase in government spending will

• A) cause aggregate demand and GDP to increase.
• B) cause aggregate demand and GDP to decrease.
• C) not affect aggregate demand and GDP.
• D) not cause the budget deficit to increase.

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Definitions:

Completeness

In the context of preferences, the assumption that any two bundles of goods can be compared, meaning a consumer can decide if one is preferred, the other is preferred, or they are valued equally.

Transitivity

The concept in decision theory and economics that if preference or choice A is preferred to B, and B is preferred to C, then A must be preferred to C.

Marginal Rate

The additional cost or benefit associated with a small unit change in a variable or activity.

Indifference Curve

A graph representing combinations of two goods that provide the consumer with the same level of satisfaction, illustrating preferences.