Question

Which of the following states the

economic reasoning behind the
crowding out effect?
A. Government spending is a waste of public resources.
B. Governments are too wasteful to make good
economic choices.
C. An increase in government spending directs
resources away from their most valued economic end.

Answer 1

Step-by-step explanation:

C. An increase in government spending directs resources away from their most valued economic end. This refers to the economic concept of crowding out, which occurs when an increase in government spending leads to higher interest rates and a decrease in private investment, ultimately reducing economic output. This happens because the government is directing resources towards certain projects, which may compete with private investment opportunities and drive up interest rates. Hence, the crowding out effect suggests that increased government spending may have negative consequences on the overall economy.