In the Extreme Case of a Complete Crowding-Out Effect

question 147

Multiple Choice

In the extreme case of a complete crowding-out effect

• A) an increase in interest rates will stimulate investment spending.
• B) an increase in tax rates will stimulate work effort.
• C) an increase in government spending will not increase aggregate demand.
• D) an increase in government spending will stimulate investment spending.

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Definitions:

Contract

A contract is a legally binding agreement between two or more parties, enforceable by law.

Consideration

The value (such as money, service, or goods) exchanged between parties in a contract which makes the agreement legally binding.

Bilateral Contract

An agreement involving two parties where each promises to perform an act in exchange for the other's act.

Unilateral Contract

A legal agreement in which only one party makes a promise or undertakes a performance obligation in exchange for an act by the other party.