Which of the following is an example of crowding-out?
A) The government invests in education,shifting the long-run aggregate supply curve to the right.
B) The government lowers taxes,but spending does not increase.
C) The government increases spending but does not increase taxes,and the size of the deficit increases.
D) The government adopts a balanced budget amendment.
E) The government pays $2 million to workers who have lost their jobs in the form of unemployment compensation.

Question

Quizplus · Accepted Answer

Crowding-out occurs when increased government spending leads to higher interest rates, which then reduces private investment. In option C, the government increases spending without raising taxes, leading to a larger deficit, which can result in higher interest rates and reduced private investment.

Which of the Following Is an Example of Crowding-Out