Crowding Out

Multiple Choice

Crowding out occurs when investment spending by the private sector decreases as a result of

• decreasing interest rates caused by an increase in the supply of government bonds

• decreasing interest rates caused by a decrease in the demand for loanable funds

• decreasing interest rates caused by an increase in government borrowing

• increasing interest rates caused by an increase in government borrowing

• increasing interest rates caused by a decrease in government borrowing

Multiple Choice

The Crowding Out Effect from Government spending is best described as

• the rightward shift in AD in response to the decreasing interest rates from contractionary fiscal policy.

• the leftward shift in AD in response to the rising interest rates from expansionary fiscal policy

• the effect of the president increasing the money supply, which decreases real interest rates, and increases AD.

• the effect on the economy of hearing the chairperson of the central bank say that they believe that the economy is in a recession.

• the lower exports due to an appreciating dollar versus other currencies.