Economists call the idea that increases in government spending cause decreases in private investment
a. crowding out
b. locking in
c. the liquidity trap
d. automatic stabilization
e. the Phillips trade off
A
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Partial crowding out implies that a government deficit financed by selling bonds to the non-bank public will
A) have no effect on aggregate demand. B) reduce aggregate demand. C) increase aggregate demand. D) reduce aggregate demand in the short run but cause demand to increase in the long run.
Creative destruction
What will be an ideal response?
The difference between a price increase and a decrease in income is that:
A. a decrease in income does not affect the slope of the budget line, while an increase in price does change the slope. B. a price increase will increase real income, while a decrease in income will increase real income. C. a price increase does not affect the consumption of other goods, while a decrease in income does. D. None of the statements is correct.
Diminishing marginal returns occurs:
A. only in the short-run. B. both the short-run and the long-run. C. only in the long-run. D. only in time periods that are neither long-run or short-run.