Question 3 (4 points) Crowding out results when an increase in government spending leads to declines in consumption and/or investment due to the federal budget deficits. True False
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Which of the following statements about crowding out is true? a. It is caused by a budget surplus. b. It is not caused by a budget deficit. c. It cannot completely offset the multiplier effect of deficit government spending. d. It affects interest rates and, in turn, consumption and investment spending.
Jennifer S.
Some economists argue that because increases in government spending crowd out private spending, increased government spending will reduce the long-run growth rate of real GDP. a. Is this outcome most likely to occur if the private spending being crowded out is consumption spending, investment spending, or net exports? Briefly explain. b. In terms of its effect on the long-run growth rate of real GDP, would it matter if the additional government spending involves (i) increased spending on highways and bridges or (ii) increased spending on national parks? Briefly explain.
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Multiple Choice Question.... Which statement is a major consequence of high government budget deficits? A) All else held constant, high budget deficits financed by borrowing will lead to lower interest rates. B) If the government finances the deficit by borrowing money, it can crowd out business investment. C) Budget deficits cause unemployment as firms relocate to countries with balanced budgets. D) Printing money to finance the deficit can lead to a significantly deflationary environment.
Andrew D.
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