If increases in defense spending by the government "crowd out" private investment spending, this will lead to
A) higher levels of real income and wages in the future.
B) no effects on real income and wages in the future.
C) lower levels of real income and wages in the future.
D) higher levels of real income and lower levels of wages in the future.

Question

Quizplus · Accepted Answer

When government spending on defense increases, it puts pressure on the available resources in the economy, which can lead to higher interest rates and less borrowing by private investors. This, in turn, leads to lower private investment spending, which can reduce future economic growth and lower real income and wages. Therefore, the correct answer is (C) lower levels of real income and wages in the future.

If Increases in Defense Spending by the Government "Crowd Out