The Impact of an Increase in Government Purchases May Be

The impact of an increase in government purchases may be smaller than first assumed (in the crowding out effect) because:

A) ​As the new spending takes place, income and real GDP will rise which will cause households and firms to increase their demand for money to accommodate increased buying and selling.
B) ​The increase in the demand for money will cause the interest rate to rise.
C) ​As a result of the higher interest rate, consumers may decide against buying a car, a home, or other interest sensitive goods, and businesses may cancel or scale back plans to expand or buy new capital equipment.
D) ​All of the above