AP®︎ Macroeconomics: Topic 5.5 Practice Test
Prepare for your quiz, test, or the AP exam with focused practice questions on Topic 5.5 of AP Macroeconomics – Crowding Out.
Questions List
Topic 5.5
Question 1 Easy
This question tests the following: POL-3.C
What is the crowding-out effect?
What You’re Being Tested On:
Explore the learning objectives taken directly from the College Board’s AP® Macroeconomics Curriculum. Ensure you’re prepared for the exact topics covered on the AP® exam, in-class tests, and quizzes, and gain confidence in your mastery of the material.
Topic 5.5: Crowding Out
Learning Objective: POL-3.C
a. Define crowding out. b. Explain (using graphs as appropriate) how fiscal policy may cause crowding out.
Essential Knowledge: POL-3.C.1
When a government is in budget deficit, it typically borrows to finance its spending.
Essential Knowledge: POL-3.C.2
A loanable funds market model can be used to show the effect of government borrowing on the equilibrium real interest rate and the resulting crowding out of private investment. [See MKT-4]
Essential Knowledge: POL-3.C.3
Crowding out refers to the adverse effect of increased government borrowing, which leads to decreased levels of interest-sensitive private sector spending in the short run.
Essential Knowledge: POL-3.C.4
A potential long-run impact of crowding out is a lower rate of physical capital accumulation and less economic growth as a result.
