The Crowding Out Effect Is Usually Associated with

question 79

Multiple Choice

The crowding out effect is usually associated with

• A)a temporary change in taxes.
• B)an increase in the rate of interest following government borrowing.
• C)the reinforcing impact of provincial tax changes on federal tax changes.
• D)the impact of a tax cut when the aggregate supply function is horizontal.

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Definitions:

Interest Rate

The percentage at which interest is paid by borrowers for the use of money that they borrow from a lender.

Profit

The financial gain that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Borrow

To receive something, especially money, from a person or financial institution with the agreement to return it, typically with interest, at a future date.

Gross Domestic Product (GDP)

The nation’s expenditure on all the goods and services produced in the country during the year at market prices; represented by GDP.