The Strict Crowding-Out Argument Relies on the Assumption That

question 96

Multiple Choice

The strict crowding-out argument relies on the assumption that

• A)the government must raise taxes to pay for spending, and the tax increase crowds out the stimulative effect of increased spending.
• B)the total flow of saving is a fixed amount.
• C)investment is invariant to interest rates, but very dependent on aggregate spending.
• D)consumption will rise to absorb most of an increase in income, and investment will accordingly fall.

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Definitions:

Variable Expenses

Costs that change in direct proportion to changes in the level of activity or volume of output produced.

Break-even Point

The break-even point is reached when the overall expenses match the total income, leading to no gains or losses.

Sales Mix

The combination of products or services that a company sells, impacting the overall profitability.

Operating Income

Earnings before interest and taxes (EBIT), representing the profit from core business operations.