The Crowding-Out Effect Indicates That Budget Deficits

question 24

Multiple Choice

The crowding-out effect indicates that budget deficits

• A) will stimulate aggregate demand and, therefore, exert a strong impact on output and employment.
• B) will lead to additional borrowing and higher interest rates that will reduce the level of private spending.
• C) are highly appropriate when the threat of inflation is present.
• D) are highly appropriate when the threat of recession is present.

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Definitions:

Retail Method

An inventory valuation method used by retailers that estimates inventory value by applying a cost to retail price ratio.

Estimated Cost

An approximation of the cost for goods or services, projected based on current information and past experience.

Retail Method

A pricing strategy used to estimate the value of a store's merchandise by considering the initial cost of inventory and its markup to retail price.

Cost To Retail Price

A pricing strategy where the selling price of an item is determined by adding a margin to its cost.