Which of the Following Helps Explain How the Multiplier and Crowding-Out

question 98

Multiple Choice

Which of the following helps explain how the multiplier and crowding-out effect impact the size of the shift in aggregate demand from a tax change.

• A)​Tax cuts stimulate consumer spending, earnings and profits rise, which further stimulates consumer spending-the multiplier effect.
• B)​The higher income leads to an increase in the demand for money, which tends to lead to higher interest rates.
• C)​The higher interest rates make borrowing more costly and reduce investment spending-the crowding-out effect.
• D)​All of the above

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Definitions:

Franchisor

A business entity that grants the rights to an individual or group to market its products or services in a specific territory under the business's brand and operating methods.

Franchisee

An individual or company that holds the rights to operate a business under the franchise's name and system.

Manager

A person responsible for controlling or administering all or part of a company or similar organization.

Venture Capitalists

Investors who provide capital to startup companies and small businesses with perceived long-term growth potential in exchange for equity, or an ownership stake.