If 'crowding out' occurs, an increase in government spending:
A)increases the interest rate and consumption and investment spending decline.
B)decreases the interest rate and consumption and investment spending decline.
C)increases the interest rate and consumption and investment spending rise.
D)decreases the interest rate and consumption and investment spending rise.

Question

Quizplus · Accepted Answer

Crowding out occurs when an increase in government spending leads to an increase in interest rates, which reduces private sector investment and consumption spending. Therefore, option A is correct as it states that an increase in government spending will increase interest rates and cause a decline in consumption and investment spending.

If 'Crowding Out' Occurs, an Increase in Government Spending