Higher personal income taxes

Assume the economy is closed and that it is operating at full employment. Which statement is TRUE when the size of the budget deficit decreases?

A) The increased amount of public goods will crowd out privately produced goods. B) A reduction in the growth of productivity, and a reduction in society's standard of living will occur. C) The interest rate will decrease, leading to an increase in investment and capital formation. D) Demand and supply of credit will increase.

The idea that a $1 increase in infrastructure spending will generate more than $1 in economic growth is a representation of

A) the multiplier effect. B) an automatic stabilizer. C) an outside lag. D) an inside lag.