Suppose the government increases government purchases and there is some crowding out.
As a result

Question

Quizplus · Accepted Answer

Crowding out refers to the decrease in private investment that occurs when the government borrows more money to finance its increased spending. This decrease in investment can offset some of the initial increase in aggregate demand caused by the government spending. Therefore, the rightward shift of the aggregate demand curve due to increased government purchases is offset to some degree by the crowding out effect.

Suppose the Government Increases Government Purchases and There Is Some