When an increase in government purchases raises incomes shifts money demand to the right raises the interest rate, and lowers investment we have seen a demonstration of ?
Correct answer: C. The crowding-out effect
- A. supply-side economics
- B. None of these answers
- C. The crowding-out effect
- D. The multiplier effects
Explanation
Higher government purchases raise income and money demand, pushing up interest rates and reducing private investment. This reduction in private investment caused by government borrowing is the crowding-out effect.
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