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:

Unemployment Rate

The segment of the workforce that is out of work and actively pursuing job opportunities.

Unanticipated Inflation

Inflation that occurs when there is a difference between expected and actual inflation, often causing economic distortions.

Savers

Individuals who allocate part of their income to a savings account or other forms of investment for future use, rather than spending it immediately.

Borrowers

Individuals or entities that take out loans from financial institutions or individuals, typically agreeing to pay back the original amount plus interest.