Question : The crowding-out effect suggests that an increase in government expenditure leads to:
Option 1: A decrease in private investment
Option 2: An increase in private investment
Option 3: No change in private investment
Option 4: An increase in savings
Correct Answer: A decrease in private investment
Solution : The correct answer is (a) A decrease in private investment.
The crowding-out effect is a theory in economics that suggests that an increase in government spending can lead to a decrease in private investment. This is because when the government spends more money, it has to borrow more money. This increased demand for loans drives up interest rates, making it more expensive for businesses to borrow money to invest. As a result, businesses may decide to invest less money, which can lead to slower economic growth.
The crowding-out effect is not always a bad thing. In some cases, it can be necessary to increase government spending in order to stimulate the economy. However, it is important to be aware of the potential negative consequences of increased government spending, such as the crowding-out effect.
Question : The crowding-out effect refers to:
Option 1: A decrease in private investment due to an increase in government expenditure
Option 2: An increase in private investment due to an increase in government expenditure
Option 3: A decrease in government expenditure due to an increase in private investment
Option 4: An increase in government expenditure due to a decrease in private investment
Question : The wealth effect suggests that an increase in the price level leads to:
Option 1: A decrease in consumption expenditure
Option 2: An increase in consumption expenditure
Option 3: A decrease in investment expenditure
Option 4: An increase in investment expenditure
Question : The concept of the multiplier effect suggests that an increase in:
Option 1: Investment expenditure leads to a larger increase in real GDP
Option 2: Consumption expenditure leads to a larger increase in real GDP
Option 3: Government expenditure leads to a larger increase in real GDP
Option 4: Net exports leads to a larger increase in real GDP
Question : The concept of "crowding-out effect" in the government budget refers to:
Option 1: A decrease in private investment due to increased government expenditure
Option 2: An increase in private investment due to decreased government expenditure
Option 3: A decrease in government expenditure due to increased private investment
Option 4: An increase in government expenditure due to decreased private investment
Question : The interest rate effect states that an increase in the price level leads to:
Option 1: An increase in the interest rate
Option 2: A decrease in the interest rate
Option 3: No change in the interest rate
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