Test Prep For AP® Courses


Crowding out refers to a situation in which government spending _______, causing interest rates to _______.

  1. increases; increase
  2. increases; decrease
  3. decreases; increase
  4. decreases; decrease
  5. increases; remain unchanged

“If the government tries to stimulate the economy by lowering taxes, people will just save the extra money anyway, with no effect on consumption or GDP.” This statement most closely refers to _______.

  1. crowding out
  2. lag effects of fiscal policy
  3. contractionary fiscal policy
  4. open market operations
  5. Ricardian equivalence

If the government of country X is currently operating with a trade deficit, then which of the following is most likely to be true in country X?

  1. The interest rate is negative.
  2. Tax revenues exceed spending.
  3. There is a net increase of foreign capital into country X.
  4. Consumption growth is negative.
  5. The debt-to-GDP ratio is high.