The Crowding-Out Effect Implies That a Government Budget Deficit ________

question 12

Multiple Choice

The crowding-out effect implies that a government budget deficit ________ the demand for loanable funds and ________ equilibrium investment.

• A) increases; increases
• B) increases; decreases
• C) decreases; increases
• D) decreases; decreases
• E) does not change; does not change

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Definitions:

Economy

The large set of inter-related production, consumption, and exchange activities that aid in determining how scarce resources are allocated.

Increase

An upward change or growth in a quantity or value.

Inflation

A measure of the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

Consumer Goods

Physical products purchased by consumers for personal or household use.