Crowding out occurs when expansionary fiscal policy leads to
A) a higher money supply and a reduction in net exports.
B) a higher money supply and a reduction in the interest rate.
C) a higher interest rate and a reduction in private investment.
D) a higher price level and a reduction in the money supply.
Answer: C) a higher interest rate and a reduction in private investment.
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The income effect of an increase in the price of hominy grits (an inferior good) is a(n)
a. decrease in the demand for hominy grits b. decrease in the quantity demanded of hominy grits c. increase in the demand for hominy grits d. increase in the quantity demanded of hominy grits e. new demand curve because everything else is no longer constant
If the federal budget deficit grows too large, then we can safely state that it will be difficult for government to justify implementing contractionary fiscal policies
Indicate whether the statement is true or false