The United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy. In this case, the crowding-out effect suggests that investment spending would:
A. decrease, thus decreasing aggregate demand and partially offsetting the fiscal policy.
B. increase, thus decreasing aggregate demand and partially offsetting the fiscal policy.
C. increase, thus increasing aggregate demand and partially reinforcing the fiscal policy.
D. decrease, thus increasing aggregate demand and partially offsetting the fiscal policy.
Answer: A
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When the Fed extends loans to depository institutions
A) it increases the level of reserves. B) it decreases the level of reserves. C) it reduces the total value of the assets on its balance sheet. D) it reduces the total value of the liabilities on its balance sheet.
Jimmy is very excited about the costume party with a 1990s theme. He is planning to dress up as MC Hammer but is also considering going as a lifeguard from Baywatch. His opportunity cost of arriving dressed like MC Hammer is:
A. the cost of parachute pants that MC Hammer would wear. B. the savings from not purchasing red swimming trunks. C. giving up the alternative of dressing like a lifeguard. D. there is no opportunity cost because he attended the party either way.
A consumer's switch to another similar good when the price of the preferred good increases is termed the: a. income effect
b. substitution effect. c. utility effect. d. marginal effect.
If the MPC is .80, then a change in disposable income of $60 billion will lead to an initial change in consumption of
a. $30 billion. b. $42 billion. c. $48 billion. d. $60 billion. e. $70 billion.