1) An increase in government spending \"crowds out\" private investment because

Question

1) An increase in government spending "crowds out" private investment because
Answer

a) an increase in government spending causes output and prices to rise, which in turn causes interest rates to rise.

b) an increase in government spending causes output and prices to fall, which in turn causes interest rates to rise.

c) an increase in government spending causes output and prices to rise, which in turn causes interest rates to fall.

d) an increase in government spending causes output and prices to fall, which in turn causes interest rates to fall.

2) In the short run, decreases in the growth rate of the money supply will _______ nominal rates of interest and _______ real rates of interest.
Answer

a) decrease; increase

b) increase; decrease

c) decrease; decrease

d) increase; increase

3) Automatic stabilizers dampen economic fluctuations during expansions because tax payments _______ while transfer payments _______.
Answer

a) decrease; decrease

b) increase; increase

c) increase; decrease

d) decrease; increase

Explanation / Answer

1) A 2) C 3) C

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