The crowding-out effect suggests that
A) increases in consumption are always at the expense of saving.
B) increases in government spending will close a recessionary expenditure gap.
C) increases in government spending may reduce private investment.
D) high taxes reduce both consumption and saving.

Question

Quizplus · Accepted Answer

The crowding-out effect suggests that increases in government spending may reduce private investment. This happens because government spending increases demand for goods and services, which can lead to higher prices and interest rates, which in turn can discourage private investment.

The Crowding-Out Effect Suggests That