The crowding-in effect depends on the fact that often a decrease in taxes causes a(n)
A. decrease in interest rates and an increase in the price of existing bonds.
B. increase in output, which induces more investment.
C. increase in interest rates and a decrease in the price of existing bonds.
D. decrease in interest rates and the price of existing bonds.
Answer: B
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Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?
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