Complete crowding out implies that as government increases purchases by $1,
A) private spending decreases by $1.
B) Real GDP remains unchanged.
C) there is an equal offsetting decrease in one or more of the components of private expenditures.
D) all of the above
E) none of the above

Question

Quizplus · Accepted Answer

Complete crowding out occurs when an increase in government spending leads to an equal decrease in private spending, leaving the overall level of Real GDP unchanged. This means that for every dollar the government spends, there is a dollar less spent by the private sector, which includes households, businesses, and investors. This scenario encompasses all the statements provided: a decrease in private spending by $1 (A), Real GDP remains unchanged (B), and an equal offsetting decrease in components of private expenditures (C).

Complete Crowding Out Implies That as Government Increases Purchases by $1