Question

Which of the following is an example of crowding-out? Group of answer choices The government invests...

Which of the following is an example of crowding-out?

Group of answer choices

The government invests in education,

shifting the long-run aggregate supply curve to the right.

The government lowers taxes, but spending does not increase.

The government adopts a balanced budget amendment.

The government increases spending but does not increase taxes, and the size of the deficit increases.

The government pays $2 million to workers who have lost their jobs in the form of unemployment compensation.

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Answer #1

Ans: The government increases spending but does not increase taxes, and the size of the deficit increases.

Explanation:

When government implements an expansionary fiscal policy, such that it increases government spending without increasing the taxes. The size of the deficit increases. The government spends more by borrowing that raises the interest rate and thereby reduces the private investment spending. This increase in government spending throwing borrowing raises the interest rate and decrease in private investment spending is called crowding out effect.

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