Which of the following correctly explains the crowding-out effect?
a) An increase in government expenditures decreases the interest rate and so increases investment spending.
b) An increase in government expenditures increases the interest rate and so reduces investment spending.
c) A decrease in government expenditures increases the interest rate and so increases investment spending.
d) A decrease in government expenditures decrease the interest rate and so reduces investment spending.
Answer: b) An increase in government expenditures increases the interest rate and so reduces investment spending.
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An increase in labor productivity relates to
A) working harder over time. B) working longer over time. C) producing the same output with fewer labor hours. D) producing the same output with more labor hours.
Bonds with relatively high risk of default are called
A) Brady bonds. B) junk bonds. C) zero coupon bonds. D) investment grade bonds.