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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Negative externalities: Usually caused by __________________________.
Fill in the blank(s) with the appropriate word(s).
Recall the Application. If country A has a lower overall income tax rate than country B, and labor can freely and easily move between the two countries, ________ in country A will tend to ________
A) labor demand; decrease B) labor supply; decrease C) labor demand; increase D) labor supply; increase