If a federal budget deficit causes crowding out, _____
a. real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because the marginal propensity to consume decreases
b. real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because investment decreases
c. interest rates fall, reducing the burden of the debt
d. firms become more willing to invest
e. interest rates fall, so that decreases in investment and government purchases of goods and services exactly offset the expansionary effect of the deficit
b
You might also like to view...
When analyzing how money affects income, we are analyzing the way in which a
A. stock affects another stock. B. stock affects a flow. C. flow affects another flow. D. flow affects a stock.
Which of the following is true regarding pollution charges?
i. They force a polluter to pay a price for its pollution. ii. They are based on the marginal external cost of pollution. iii. The fee that produces the efficient amount of pollution is easily determined. A) i only B) i and ii C) ii and iii D) i, ii, and iii E) i and iii
Costs as measured by accountants generally does not include
A) any of the opportunity costs of the firm. B) any measure of depreciation. C) the economic depreciation of the firm's equipment. D) any rental rates.
If the level of interest rates paid on time deposits rise relative to that paid by money market accounts, ceteris paribus, individual will
A) reduce their real money balances. B) first reduce then increase their real money balances. C) increase their real money balances. D) hold the same amount of money.