A(n)________ in private expenditures as a result of a(n)________ in government purchases is called crowding out.
A)increase; decrease
B)decrease; decrease
C)decrease; increase
D)increase; increase

Question

Quizplus · Accepted Answer

When government purchases increase, it leads to an increase in aggregate demand which increases the interest rates. High-interest rates lead to a decrease in private investments which result in a decrease in private expenditures. This phenomenon is called crowding out. Hence a decrease in private expenditures as a result of an increase in government purchases is known as crowding out.

A(n)________ in Private Expenditures as a Result of A(n)________ in Government

A(n) in Private Expenditures as a Result of A(n) in Government