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NEW QUESTION: 1
Which one of the following best explains why the crowding out effect, brought on by an increase in government spending financed by the sale of government bonds to the public, is likely to reduce aggregate demand?
A. The sale of government bonds to the public will drive up interest rates, thereby retarding private investment and aggregate demand.
B. The sale of government bonds to the public reduces the money supply and will offset the expansionary impact of the increased government spending.
C. The question is based on a false premise. The crowding-out effect suggests that the government's selling of bonds to the public is a very effective tool with which to stimulate demand.
Answer: A

NEW QUESTION: 2

A. Option A
B. Option B
C. Option C
D. Option D
Answer: C

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