The Crowding-Out Effect Stresses That

Multiple Choice

The crowding-out effect stresses that

A) an increase in government expenditures will stimulate aggregate demand and, thereby, help to prevent recessions.
B) an increase in taxes will restrain aggregate demand and, thereby, help to control inflation.
C) additional government borrowing to finance a larger deficit will increase the demand for loanable funds, causing real interest rates to rise.
D) a budget deficit is a highly effective tool with which to combat recessions.
E) both a and d are correct.