With complete crowding out,an increase in government spending
A) is completely offset by a reduction in private spending.
B) is matched by an increase in private spending.
C) results in an increase in aggregate supply.
D) results in an increase in aggregate demand.

Question

Quizplus · Accepted Answer

Complete crowding out occurs when an increase in government spending leads to a fully offsetting reduction in private spending. This happens when the government borrows from the same pool of savings that would have been used by private investors, driving up interest rates and making it more expensive for them to invest. As a result, private investment and consumption decrease, completely offsetting the increase in government spending.

With Complete Crowding Out,an Increase in Government Spending