The Crowding-Out Effect Implies That

question 27

Multiple Choice

The crowding-out effect implies that:

• A)increases in government purchases will reduce consumption purchases.
• B)higher taxes reduce both consumption and saving.
• C)fiscal policy effects on interest rates will be offset by monetary policy.
• D)increases in government purchases may increase interest rates and thereby reduce investment.

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Definitions:

Manufacturing Overhead

All indirect costs related to the manufacturing process, such as utilities, maintenance, and salaries of supervisory personnel.

Variable Manufacturing Overhead

Costs in manufacturing that vary with the level of production output, such as utilities and certain labor costs; they do not remain constant as production levels fluctuate.

Fixed Manufacturing Overhead

Represents the indirect costs associated with manufacturing that do not vary with the level of production, such as factory rent, salaries of factory supervisors, and depreciation of factory equipment.

Machine-Hours

A unit of measure representing the operating time of machines used in the production of goods.