An opportunity cost that occurs because of increased government spending is
A)Congressional disagreements.
B)The crowding in of public sector investment.
C)The crowding out of private sector output.
D)An increase in private sector investment.

Question

Quizplus · Accepted Answer

When the government increases its spending, it will increase the demand for goods and services, which will lead to an increase in their prices. This will cause the demand for borrowing to increase, which in turn will lead to an increase in interest rates. When interest rates increase, the private sector will reduce its investment. This phenomenon is known as crowding out, and it implies that the resources available to the private sector will be limited by government spending. As a result, the private sector will be less productive than it could have been, and the economy overall will suffer.

An Opportunity Cost That Occurs Because of Increased Government Spending