The crowding out effect suggests that
[DOC File]Chapter 12 Review Questions
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This case is known as the crowding-out effect. The degree of crowding out depends on the shapes of the LM and IS curves. The steeper the LM curve and the flatter the IS curve, the greater the degree of crowding out. Complete crowding out exists when the LM curve is vertical. No crowding out exists when the LM curve is horizontal. Monetary Policy
Crowding Out Effect Definition
crowding out effect . suggests that the shift in aggregate demand could be smaller than the original amount of the government purchase. The Multiplier Effect . Definition of multiplier effect - the notion that a dollar spent can raise the aggregate demand for goods and services by more than a dollar.
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The crowding-out effect of expansionary fiscal policy suggests that: A) tax increases are paid primarily out of saving and therefore are not an effective fiscal device. B) increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.
[DOC File]CHAPTER 9
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(20) The crowding-out effect suggests that: A) increases in consumption are always at the expense of saving. B) increases in government spending will close a recessionary gap. C) increases in government spending may raise the interest rate and thereby reduce investment.
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