The classical view assumes that an increase in government purchases:
A) causes the money supply to rise by the amount of the increase.
B) is necessary to solve a recession.
C) is offset by a decrease in private spending.
D) raises total spending in the economy by the amount of the change in government purchases.

Question

Quizplus · Accepted Answer

The classical view suggests that an increase in government purchases is offset by a decrease in private spending, due to the crowding-out effect, where government spending displaces private sector investment.

The Classical View Assumes That an Increase in Government Purchases