The Crowding-Out Effect Stresses That

question 113

Multiple Choice

The crowding-out effect stresses that

• A) an increase in government expenditures will stimulate aggregate demand and, thereby, help to prevent recessions.
• B) an increase in taxes will restrain aggregate demand and, thereby, help to control inflation.
• C) additional government borrowing to finance a larger deficit will increase the demand for loanable funds, causing real interest rates to rise.
• D) a budget deficit is a highly effective tool with which to combat recessions.
• E) both a and d are correct.

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