"Crowding-out" occurs in the IS-LM model as rising government spending requires a ________ in the interest rate in order to ________ the demand for money at the new equilibrium,thus ________ planned private investment.
A)rise,keep constant,lowering
B)rise,raise,lowering
C)rise,lower,raising
D)fall,keep constant,raising
E)fall,raise,lowering

Question

Quizplus · Accepted Answer

Crowding-out in the IS-LM model happens when increased government spending leads to higher interest rates to maintain the equilibrium in the money market, which in turn lowers planned private investment.

"Crowding-Out" Occurs in the IS-LM Model as Rising Government Spending