According to Say's law, there cannot be overproduction of goods and services because
Answer(s): D
Say's Law is the view that production creates its own demand. Demand will always be sufficient to purchase the goods produced because the income payments to the resource suppliers will equal the value of the goods produced.
The crowding-out model implies that a
Answer(s): C
The crowding out theory implies that government borrowing drives up real interest rates and thus crowds out" private investment. Private investment falls under higher interest rates because the cost of investment (the real interest rate) rises if the government borrows heavily. Under the usual law of supply and demand, the government causes the interest rate to rise under deficit spending because there is a limited supply of loanable funds. The government competes with the private sector for these resources and thus drives up the price (i.e., the interest rate).
Within the Keynesian model, equilibrium output takes place ________.
Equilibrium is defined in this model as when aggregate expenditures are equal to output. Thus, the sum of planned consumption, investment government purchases and the difference between exports and imports must equal GDP.
If a broad increase in the price of stocks causes an increase in the real wealth of individuals, then the
Answer(s): B
As the real wealth of households increases, people demand more goods and services. This causes the entire aggregate demand curve to shift to the right.
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