In the short-run macro model,an increase in government spending

Question

Quizplus · Accepted Answer

An increase in government spending, in the short-run macro model, may partially crowd out private investment spending. This happens because, when the government increases its spending, it increases demand for goods and services, which can lead to higher prices. This, in turn, makes it more expensive for businesses to invest, as they face higher costs of production. As a result, some of the private investment spending is "crowded out" by the government spending. However, the extent of the crowding out effect depends on various factors, including the size of the government spending increase, the degree of competition in the market, and the availability of resources (such as labor and capital). The other choices are not accurate in terms of the short-run macro model.

In the Short-Run Macro Model,an Increase in Government Spending