Suppose There Are Both Multiplier and Crowding Out Effects but Without

question 411

Multiple Choice

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

• A) shift aggregate demand right by a larger amount than the increase in government expenditures.
• B) shift aggregate demand right by the same amount as the increase in government expenditures.
• C) shift aggregate demand right by a smaller amount than the increase in government expenditures.
• D) Any of the above outcomes are possible.

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Definitions:

Financing Activities

Transactions and events whereby resources are obtained from, or repaid to, owners (equity financing) and creditors (debt financing).

Equity Accounts

Accounts that represent the owner's claim or interest in the assets of a business, reflected in the equity section of the balance sheet.

Operating Activities

The day-to-day actions that are involved in running a business, which are reflected in the cash flows from operating activities section of the cash flow statement.

Direct Method

A method for creating a cash flow statement that itemizes the principal categories of gross cash inflows and outflows.