The reduction in investment spending in the long run resulting from an increase in government expenditures is called:

Question

Quizplus · Accepted Answer

Crowding out refers to the decrease in private investment spending due to increased government spending, as it leads to higher interest rates and reduced availability of funds for private investment. This reduction in investment spending in the long run is known as crowding out. The multiplier effect refers to the impact of an initial change in spending resulting in a larger change in overall demand. Money neutrality refers to the idea that changes in the money supply do not affect real economic variables such as output and employment. Crowding in refers to the opposite of crowding out, where increased government spending leads to higher private investment spending.

The Reduction in Investment Spending in the Long Run Resulting