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20 March, 05:59

Which of the following is an example of crowding out? a. An increase in government spending increases interest rates, causing investment to fall. b. A decrease in private savings increases interest rates, causing investment to fall. c. A decrease in the money supply increases interest rates, causing investment to fall. d. An increase in taxes increases interest rates, causing investment to fall.

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  1. 20 March, 08:10
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    a. An increase in government spending increases interest rates, causing investment to fall.

    Explanation:

    Crowding out occurs when increased government spending backfires and has a negative impact in the private sector due to the increase in interest rates, which are pivotal in the decision-making process of private investments. A high intensity crowding out may even lead to a negative overall impact in the economy. Therefore, the answer is alternative a.
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