According to the Crowding-Out Effect, How Do the Interest Rate

question 97

Multiple Choice

According to the crowding-out effect, how do the interest rate and investment spending change when government spending increases?

• A) The interest rate and investment spending both increase.
• B) The interest rate increases and investment spending decreases.
• C) The interest rate decreases and investment spending increases.
• D) The interest rate and investment spending both decrease.

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Definitions:

Trade-offs

Situations where making a decision to gain something entails losing something else, typically requiring a compromise or balancing act.

Technology

The application of scientific knowledge for practical purposes, especially in industry and improvements in tools, machinery, and systems.

Production Possibilities Frontier

The production possibilities frontier (PPF) is a curve depicting all maximum output possibilities for two or more goods, given a set of inputs.

Opportunity Cost

The value of the next best alternative that is forgone as a result of making a particular choice.