If there is crowding out, which of the following might decrease as government expenditures increase?
A) the overall change in real GDP
B) the demand for money curve
C) interest rates
D) the demand for capital goods

Question

Quizplus · Accepted Answer

Crowding out occurs when increased government spending leads to higher interest rates, which in turn reduces investment spending by businesses on capital goods. As the government borrows more to finance its spending, it competes with the private sector for available funds in the financial markets, leading to higher interest rates. This makes borrowing more expensive for businesses, which can reduce their investment in capital goods.

If There Is Crowding Out, Which of the Following Might