If crowding out exists, the expansionary effect of government spending will be:
A)smaller than intended.
B)negative.
C)infinite.
D)larger than intended.
E)zero.

Question

Quizplus · Accepted Answer

Crowding out occurs when government borrowing to finance its spending increases interest rates, which reduces private investment. As a result, the intended expansionary effect of government spending is smaller than anticipated.

If Crowding Out Exists, the Expansionary Effect of Government Spending