A drop in consumption or investment spending caused by increased government spending is referred to as:
A) the multiplier effect.
B) an expansionary gap.
C) Ricardian equivalence.
D) the paradox of thrift.
E) crowding out.

Question

Quizplus · Accepted Answer

The situation described is known as "crowding out," where an increase in government spending results in a decrease in private consumption or investment spending. This happens because the government borrowing that funds the additional spending increases interest rates, reducing the amount of investment or consumption that borrowers can afford.

A Drop in Consumption or Investment Spending Caused by Increased