A drop in consumption or investment spending caused by increased government spending is referred to as:
A)the multiplier effect.
B)an expansionary gap.
C)the Ricardian equivalence.
D)the paradox of thrift.
E)the crowding out.

Question

Quizplus · Accepted Answer

The drop in consumption or investment spending caused by increased government spending is known as the crowding out effect. This occurs when the government borrows money from the financial market to fund its spending, which increases interest rates and reduces private investment and consumption.

A Drop in Consumption or Investment Spending Caused by Increased