When private expenditures decrease as a result of increased government spending, this is known as
A) a monetary effect.
B) the crowding out effect.
C) the multiplier effect.
D) an automatic stabilizer.

Question

Quizplus · Accepted Answer

The reduced private expenditures due to increased government spending is known as the crowding out effect. This is because the increased demand for goods and services from the government leads to higher interest rates, which makes it more expensive for individuals and businesses to borrow money and invest in their own spending, hence crowding them out of the market.

When Private Expenditures Decrease as a Result of Increased Government