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The change in aggregate demand that results from fiscal expansion changing the interest rate is called...

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

A. crowding-out effect.
B. accelerator effect.
C. multiplier effect.
D. Ricardian equivalence effect.
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Answer #2

Ans: crowding-out effect.

Explanation:

  • The change in aggregate demand that results from fiscal expansion changing the interest rate is called the crowding-out effect.

  • An increase in the rate of economic growth will cause a correspondingly larger increase in the level of investment is called accelerator effect.

  • When an initial injection into the economy causes a bigger final increase in national income is called multiplier effect.

  • Ricardian equivalence effect states that a government cannot stimulate consumer spending since people assume that whatever is gained now will be offset by higher taxes due in the future.

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