Which of the Following Best Describes the Crowding-Out Effect

question 32

Multiple Choice

Which of the following best describes the crowding-out effect?

• A) An increase in government expenditures will cause taxes to rise, which will reduce both aggregate demand and output.
• B) An increase in borrowing by the government will push interest rates upward, which will lead to a reduction in private spending.
• C) An increase in borrowing by the government will decrease the money supply and, thereby, reduce aggregate demand.
• D) An increase in government expenditures will cause the general level of prices to fall and, thereby, reduce aggregate demand and output.

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Definitions:

Reduction In Income Inequality

Refers to efforts or policies aimed at decreasing the disparity in income distribution among a population, thereby promoting economic fairness.

Transfer Payments

Payments made by the government to individuals or other entities without receiving any goods or services in return, such as welfare benefits or social security.

Earned-Income Tax Credits

A refundable tax credit for low- to moderate-income working individuals and families, particularly those with children, aimed at reducing poverty and encouraging work.

Unequal Distribution Of Income

A situation where income is not distributed evenly among the population, leading to disparities in wealth and living standards.