Increases in government spending result in ________ in the short run, and permanent increases in government spending result in ________ in the long run.

Question

Quizplus · Accepted Answer

In the short run, increases in government spending can lead to partial crowding out, as the increased demand from government spending can raise interest rates, which in turn can reduce private investment. However, in the long run, if the government spending increase is permanent, it can lead to complete crowding out, where the government borrowing essentially takes over the space in the capital markets, leaving less room for private investment.

Increases in Government Spending Result in ________ in the Short