Question

Which of the following is an example of crowding out? Question 13 options: A decrease in the rate of growth of the money supply which causes a decrease in Real GDP. A budget deficit causes an increase in interest rates, which causes a decrease in investment spending. An increase in tariffs which causes a decrease in imports. A decrease in government housing subsidies which causes an increase in private spending on housing.

Answer 1

Answer:

A budget deficit causes an increase in interest rates, which causes a decrease in investment spending.

Explanation:

In domain of economics, crowding out

can be regarded as a phenomenon which take place as a result of increased in involvement of government in market economy sector which substantially has effect on remainder of the market, this effect could be on the supply side, it could be on demand side of the market. An example of crowding out is A budget deficit causes an increase in interest rates, which causes a decrease in investment spending.