A decline in the investment share of GDP due to an increase in government purchases is known as
A) investment blackout.
B) disinvestment.
C) crowding out.
D) None of these

Question

Quizplus · Accepted Answer

A decline in the investment share of GDP due to an increase in government purchases is known as crowding out. This is because when government purchases increase, there is a higher demand for loanable funds, which raises interest rates and reduces the amount of funds available for private investment. This can lead to a decrease in private investment and a decline in the investment share of GDP.

A Decline in the Investment Share of GDP Due to an Increase