Crowding out occurs when:
A) higher government spending leads to less private spending.
B) personal consumption decreases due to an increase in savings.
C) overall output is crowded out by lower government spending.
D) increases in government spending lead to increases in taxes.

Question

Quizplus · Accepted Answer

Crowding out refers to the phenomenon where higher government spending reduces private spending. This can occur because increased government spending typically requires higher taxes or borrowing, which can reduce disposable income and available funds for private investment or consumption. Option B describes a different economic phenomenon known as the paradox of thrift, while Option C is a false statement. Option D describes how higher government spending may be financed but does not directly address crowding out.

Crowding Out Occurs When