The "crowding-out effect" suggests that:
A)the economy's productive capacity will reduce.
B)imports are replacing domestic production.
C)private investment is increasing at the expense of government spending.
D)investment is increasing at the expense of consumption.

Question

Quizplus · Accepted Answer

The crowding-out effect suggests that increased government spending will result in higher interest rates, leading to reduced investment and lower economic output. This means that the economy's productive capacity will reduce, making option A the correct choice.

The "Crowding-Out Effect" Suggests That