Whenever government spending is a substitute for private spending

Question

Quizplus · Accepted Answer

When government spending is a substitute for private spending, it means that private individuals or firms are reducing their spending because they expect the government to provide the goods or services instead. This implies that the effects of expansionary fiscal policy (where the government increases spending to boost the economy) are dampened because private spending is not increasing in response to the government's actions. Therefore, the correct answer is C.

Whenever Government Spending Is a Substitute for Private Spending