Question

Crowding out is a phenomenon: a where an increase in government's budget deficit causes the overall investment spending to fall. b where an increase in government spending causes an equal decrease in consumption spending. c where overproduction in the goods market leads to a sharp drop in the aggregate price level. d where an increase in imports causes the overall domestic production to fall. e where an increase in government's budget surplus decreases the overall investment spending.

Answer 1

A

Step-by-step explanation:

Crowding out implies an increase in interest rate , less borrowing and less private investment as a result of government's budget deficit.

It is a phenomenon where an increase in government's budget deficit cause the overall investment to fall as it demands for borrowing to fund budget.

This can also be explained as when government's involvement in a particular sector of the market affects the other sector of the market.

Answer 2

A. where an increase in government's budget deficit causes the overall investment spending to fall.

Step-by-step explanation:

Crowding out is a situation in an economy that describes where consumption of goods and services falls and business investments are decreased/fall because government spending goes up and deficit financing takes up all available financial resources thereby causing interest rates to go up.

In other words increased government spending causes private sector spending to fall.