Crowding Out Refers to the Situation in Which

question 16

Multiple Choice

Crowding out refers to the situation in which

• A) borrowing by the federal government raises interest rates and causes firms to invest less.
• B) foreigners sell their bonds and purchase U.S. goods and services.
• C) borrowing by the federal government causes state and local governments to lower their taxes.
• D) increased federal taxes to balance the budget causes interest rates to increase and consumer credit to decrease.

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Definitions:

Price Leader

A company or product that has a large enough market share to influence the price levels of its products or services in the industry.

Entry of New Firms

The process by which new companies enter an industry, often leading to increased competition and impacts on market prices and incumbent firms.

Oligopolistic Firms

Companies that operate in a market structure characterized by a small number of dominant firms, often leading to limited competition.

Price Cuts

Reductions in the selling price of goods or services, often used as a strategy to increase demand or compete more effectively.