The crowding-in effect depends on the fact that often a decrease in taxes causes a(n)
A)decrease in interest rates and an increase in the price of existing bonds.
B)increase in output, which induces more investment.
C)increase in interest rates and a decrease in the price of existing bonds.
D)decrease in interest rates and the price of existing bonds.

Question

Quizplus · Accepted Answer

The crowding-in effect suggests that a decrease in taxes will stimulate economic activity, leading to an increase in output and inducing more investment. This is because, with lower taxes, firms and individuals have more disposable income, which they can use to invest and consume more. As a result, the demand for goods and services increases, contributing to more economic growth.

The Crowding-In Effect Depends on the Fact That Often a Decrease