More government spending
A) can compete with private spending and cause crowding out.
B) is always beneficial.
C) lowers the government deficit.
D) increases the government surplus.
E) reduces the current account deficit.

Question

Quizplus · Accepted Answer

When the government spends more, it may borrow to finance the spending, leading to an increase in interest rates. This increase in interest rates makes it more expensive for private firms to invest and borrow, thus causing crowding out. Therefore, more government spending can compete with private spending and cause crowding out.

More Government Spending