Question

According to the​ crowding-out effect, if the federal government increases​ spending, the demand for money and the equilibrium interest rate will​ ___________, which will cause​ consumption, investment, and net exports to​ ___________.

Answer 1

Increase, decrease

Step-by-step explanation:

Deficit spending is a case whereby acquisition of commodities exceeds income generated. This occurs at the lowest level, individuals, and also in businesses but majority of the time, it refers to the government. Generally, governments have a lot of reason to spend more than the income they generate and when the spending is more than revenue, a budget deficit is created. However, the crowding-out effect emerges from the theory that government deficit spending caused by increase in purchase leads to an increase in interest rates, which in turn reduces investment.