Crowding out is the offsetting effect on private expenditures caused by the government's sale of bonds to finance expansionary fiscal policy.
Answer the following statement true (T) or false (F)
True
Crowding out refers to the increase in interest rates and subsequent reduction in private investment that result from expansionary fiscal policy.
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Which of the following will result in the money market when the price level in an economy rises, while the supply of money remains unchanged? a. The demand for money will decrease
b. The supply of money will increase. c. The rate of interest will decrease. d. The total investment spending in the economy will increase. e. The rate of interest will increase.
Consider someone who borrows $10,000 to buy a car at a fixed interest rate of 4.5%. If inflation is 3% at the time the loan is made, then the loan must be repaid at a real interest rate of ______. But if inflation rises to ______, then the real interest rate on the loan is zero.
a. 1.5%; 7.5% b. 1.5%; 4.5% c. 3%; 7.5% d. 4.5%; 7.5%
Scarce good
What will be an ideal response?
In order to borrow money to finance a deficit, the federal government
A. sells government securities. B. must raise taxes. C. negotiates with large banks. D. cuts spending.