The Crowding-Out Effect from Government Borrowing to fiNance the Public

question 240

Multiple Choice

The crowding-out effect from government borrowing to finance the public debt is reduced when

• A) the economy is experiencing a period of high inflation.
• B) the economy is operating at the full-employment level of output.
• C) public investment complements private investment.
• D) public investment substitutes for private investment.

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Definitions:

Current Account

A component of a country's balance of payments that includes the trade balance, net primary income, and net secondary income transactions with the rest of the world.

Balance of Trade

The net difference in value between a country's exports and imports over a certain period.

Free Trade

An economic policy that allows imports and exports between countries with few or no tariffs, quotas, or prohibitions.

Bilateral Trade Agreement

A trade pact between two countries to facilitate trading and commerce, reducing tariffs and other trade barriers to mutually benefit the economies of the two nations.