The Crowding-Out Effect of Borrowing to Finance the Public Debt

question 23

Multiple Choice

The crowding-out effect of borrowing to finance the public debt:

• A)decreases current spending for private investment.
• B)increases the privately owned stock of real capital.
• C)decreases the economic burden on future generations.
• D)increases incentives to work and save.

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Definitions:

Monopolistically Competitive

A market structure where many firms sell products that are similar but not identical, leading to competition based on factors other than price.

Economic Profits

Economic profits are the surplus remaining after deducting both explicit and implicit costs from total revenue, reflecting the true profitability of a business.

Number of Firms

Refers to the total count of business entities participating in a particular market or industry.

Long-Run Equilibrium

a state in which all factors of production can be adjusted, and all firms in the market are making zero economic profits, reflecting a situation of perfect competition.