Which one of the following might offset a crowding-out effect of an increase in government spending financed through expansion of the public debt?
A)a decline in net exports
B)an improvement in business profit expectations
C)a decrease in the money supply
D)a decline in public investment

Question

Quizplus · Accepted Answer

An improvement in business profit expectations can encourage businesses to increase investment, which can stimulate economic activity and partially offset the crowding-out effect of an increase in government spending. None of the other choices listed are directly related to offsetting the crowding-out effect. A decline in net exports could worsen the situation by reducing aggregate demand, a decrease in the money supply could further limit private investment, and a decline in public investment would not necessarily enhance private investment or economic growth.

Which One of the Following Might Offset a Crowding-Out Effect