Which of the following components of aggregate expenditure is most subject to crowding out?
A)Consumption expenditures
B)Investment spending
C)Imports
D)Government purchases of goods and services
E)National saving

Question

Quizplus · Accepted Answer

Investment spending is the component of aggregate expenditure that is most subject to crowding out. When the government increases its own spending, it often borrows money to finance that spending by issuing bonds. This increases the demand for loanable funds and can lead to an increase in the interest rate, making it more expensive for private individuals and firms to borrow money for their own investments. This decrease in private investment spending that results from government borrowing is known as crowding out.

Which of the Following Components of Aggregate Expenditure Is Most