Increases in government spending result in ________ in the short run,and permanent increases in government spending result in ________ in the long run.
A)partial crowding out; partial crowding out
B)partial crowding out; complete crowding out
C)complete crowding out; complete crowding out
D)complete crowding out; partial crowding out

Question

Quizplus · Accepted Answer

Increases in government spending lead to partial crowding out in the short run because it increases the demand for goods and services, leading to higher prices and interest rates, reducing consumption and investment spending. However, in the long run, a permanent increase in government spending results in complete crowding out because it increases the government's demand for funds, leading to higher interest rates, which discourages private investment, thereby reducing the overall output and income.

Increases in Government Spending Result in ________ in the Short