In the Presence of the Crowding Out Effect, the Purchase

question 28

Multiple Choice

In the presence of the crowding out effect, the purchase of Treasury bonds by the government will result in:

• A)an increase in the interest rates.
• B)a decrease in the price of bonds.
• C)a decline in the private sector spending.
• D)an increase in the private sector spending.
• E)a decrease in the rate of inflation.

---

Definitions:

Functional Currency

The currency of the primary economic environment in which an entity operates, typically used in its financial reporting.

Historical Cost

The original monetary value of an asset or investment at the time of its purchase, not adjusted for inflation or other factors over time.

Current Rate Method

In accounting, a method for converting the financial statements of a foreign subsidiary to the parent company's currency by applying the current exchange rate to all assets, liabilities, equity, income, and expenses.

Exposure

The extent to which a company is vulnerable to risks from external factors such as currency fluctuations, market volatility, or regulatory changes.