When the Crowding-Out Effect of an Increase in Government Purchases

question 17

Multiple Choice

When the crowding-out effect of an increase in government purchases is included in the analysis:

• A)​AD shifts left, but by more than the simple multiplier analysis would imply.
• B)​AD shifts left, but by less than the simple multiplier analysis would imply.
• C)​AD shifts right, but by more than the simple multiplier analysis would imply.
• D)​AD shifts right, but by less than the simple multiplier analysis would imply.

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Definitions:

Rights Offering

A type of financial offering in which a company gives its existing shareholders the right to buy additional shares at a discounted price before the new shares are offered to the public.

Outstanding Shares

The total number of shares of stock that are currently owned by shareholders, including both public investors and restricted insiders.

Fixed Assets

Long-term tangible assets that are used in the operations of a business and are not expected to be consumed or converted into cash in the near term.