Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $500 million.This is an example of
A) incomplete crowding out.
B) complete crowding out.
C) zero crowding out.
D) a and c
E) none of the above

Question

Quizplus · Accepted Answer

Incomplete crowding out occurs when an increase in government spending leads to a decrease in private spending, but not by the full amount of the increase in government spending. In this case, the increase in public education spending led to a decrease in private education spending, but not by the full amount ($700 million vs. $500 million). If it were complete crowding out, then the decrease in private education spending would be equal to the increase in public education spending, resulting in no net change in total educational spending.

Suppose the Government Increases Spending on Public Education by $700