When a Federal Budget Deficit Causes Crowding Out

question 92

Multiple Choice

When a federal budget deficit causes crowding out:

• A)real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because bond-holders' saving declines.
• B)real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because investment declines.
• C)interest rates fall, reducing the burden of the debt.
• D)interest rates fall, bringing the current deficit back down.
• E)interest rates fall, so that decreases in investment and government purchases of goods and services exactly offset the expansionary effect of the deficit.

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