Crowding out occurs when
a. increased taxes force higher levels of national saving.
b. deficit spending by the government forces private investment spending to contract.
c. local businesses cannot get government contracts because of the higher bids of large corporations.
d. foreign investors are willing to pay higher prices for U.S. bonds than American citizens will pay.
b
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The government of Techland is planning a cut in income tax rates. What is the possible consequence of such a change in policy on Techland's economy if it is implemented?
What will be an ideal response?
Suppose that rising productivity increases potential output in each period by 4%. What kind of monetary policy would be needed to maintain a zero rate of inflation at full employment?
A. It should keep money supply constant. B. It should increase money supply by 4% in the first period and thereafter, hold money supply constant. C. It should increase money supply by 4% per period. D. It should decrease money supply by 4% each period.