Question

Suppose that government purchases rise by $100 billion and together consumption and investment decline by a total of $80 billion.
This is an example of:

a) complete crowding out.
b) zero crowding out.
c) incomplete crowding out.
d) an activity that shifts the AD curve to the left.
e) b and d

Answer 1

Answer:

a) complete crowding out.

Explanation:

This is an example of crowding out effect, when government increases it's involvement in a market, such that it reduces private sector investment, it is called crowding out