Question

Crowding out refers to the concept that

Group of answer choices

a) an increase in the government's budget deficit causes a decrease in Investment.

b) an increase in the government's budget deficit automatically causes Taxes to increase.

c) an increase in Investment causes a decrease in Government Purchases.

d) the introduction of spending bills to Congress and the Senate causes Congress and the Senate to shelve other legislation.

Answer 1

Answer:

OPTION B: an increase in the government's budget deficit automatically causes Taxes to increase.

Reason:

Crowding out as a phenomenon refers to increase in government borrowing such that ultimately it leads to a fall in private spending. Increase in governmnet borrowing is also another term for increased budget deficit because borrowing leads to higher deficit.

Hence, to finance such repayment, taxes are increased and increased taxation for public works projects and public spending could be directly linked to a reduction in the capacity for private spending within a given country, as less money was available.

Hence, increase in governmnet budget defict increases taxes and ultimately reduces private spending.

I hope my answer helps you :)