If the Crowding-Out Effect Is Strong, How Will the Potency

question 101

Multiple Choice

If the crowding-out effect is strong, how will the potency of discretionary fiscal policy be affected?

• A) It will make fiscal policy more potent.
• B) It will make fiscal policy less potent.
• C) The potency of fiscal policy will be unaffected.
• D) The potency of expansionary fiscal policy will be reduced.

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Definitions:

Government Spending

Expenditures by the government sector on goods and services, including public services and government investment, but excluding transfer payments.

Price Index

A statistical measure that shows changes in the price level of a basket of goods and services over time, used to gauge inflation.

Phillips Curve

An economic theory suggesting an inverse relationship between the rate of unemployment and the rate of inflation in an economy.

Inflation

A continuous rise in the overall price level of goods and services within an economy over a period.