Question

g Crowding out may occur when fiscal policy involves Question 28 options: A) either increases in government purchases or tax cuts. B) tax cuts. C) tax increases. D) increases in government purchases.

Answer 1

Answer: D. increases in government purchases.

Explanation:

Crowding out may occur simply due to expansionary fiscal policy that is, a situation wherby the government wants to increase the money in circulation and also increase its expenditure. This can lead to the government borrowing funds.

Crowding out may occur when fiscal policy involves increases in government purchases. This borrowing in turn, affects the money that will be available to the private investors as there'll be lesser funds for them.