The Crowding-Out Effect Indicates That Budget Deficits

question 24

Multiple Choice

The crowding-out effect indicates that budget deficits

• A) will stimulate aggregate demand and, therefore, exert a strong impact on output and employment.
• B) will lead to additional borrowing and higher interest rates that will reduce the level of private spending.
• C) are highly appropriate when the threat of inflation is present.
• D) are highly appropriate when the threat of recession is present.

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Definitions:

Shock

A sudden and intense emotional or physical reaction to an unexpected event or piece of information.

Intended Goal

A planned or desired outcome that an individual or group aims to achieve.

Frustration

A feeling of upset or annoyance resulting from being unable to achieve a goal or satisfy a need.

Instrumental Aggression

Aggression aimed at achieving a specific goal, often involving hurting another as a means to an end rather than as an end in itself.