The crowding-out effect of expansionary fiscal policy suggests that: tax increases are paid primarily out of?
a. saving and therefore are not an effective fiscal policy action.
b. an increase in government spending financed through borrowing may increase the interest rate and thereby reduce investment spending.
c. an increase in government spending will stimulate real output in the economy and crowd-out out the unemployment of workers.
d. tax cuts will pay for themselves because they will increase real output to make the economy more efficient.
The crowding-out effect of expansionary fiscal policy suggests that: tax increases are paid primarily out of?
a. saving and therefore are not an effective fiscal policy action.
b. an increase in government spending financed through borrowing may increase the interest rate and thereby reduce investment spending.
c. an increase in government spending will stimulate real output in the economy and crowd-out out the unemployment of workers.
d. tax cuts will pay for themselves because they will increase real output to make the economy more efficient.
Related textbook solutions
Related questions
Which of the following statement(s) about fiscal policy is/are true?
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A fiscal policy action to close a recessionary gap is to decrease taxes |
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Fiscal policy may require time before it takes effect (lags) |
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Expansionary fiscal policy can be achieved by increases in transfer payments and decreasing government purchases to pay for it. |
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One potential problem with using fiscal policy to close recessionary output gaps is that sustained government deficits can be harmful to long-run economic growth. |
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Fiscal policy may affect potential output as well as potential spending. |
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The choices of government spending have little effect on fiscal policy since government spending is tied directly to the business cycle through Y=C+I+G+NX. |
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A fiscal policy action to close an expansionary gap is to decrease government purchases |
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Balanced budget fiscal policy is more effective than borrowing or re-paying government debt. |