Questions: Crowding Out Use the information below to answer the question. Crowding out is a term used to describe the potential negative effects of government expenditures. According to classical economists, government expenditures crowd out expenditures that otherwise would be made by private businesses or households. Therefore, government expenditures do not induce economic growth because the increases in government expenditures are offset by a reduction in private spending. Furthermore, to fund government expenditures money is taken out of the private sector in the form of taxes. Therefore, not only are private expenditures reduced by government expenditures because of the crowding out effect but also the government is now the entity spending the money which may be allocated less efficiently than private sector spending. For example, it may be more costly for NASA (a government institution) to build and launch rockets than it is for SpaceX (a private company) because, as Which of the following describes crowding out? - Government expenditures decrease private sector spending. - Increasing taxes can increase private consumption. - Good expenditures can drive out the bad expenditures within the economy. - Government expenditures increase private sector spending.

Transcript text: Crowding Out Crowding Out Use the information below to anower the question. Crowding out is a term used to describe the potential negative effects of government expenditures. According to classical economists, govemment expenditures crowd out expenditures that otherwise would be made by private businesses or households. Therefore, government expenditures do not induce economic growth because the increases in government expenditures are offset by a reduction in private spending. Furthermore, to fund government expenditures money is taken out of the private sector in the form of taxes. Therefore, not only are private expenditures reduced by government expenditures because of the crowding out effect but also the government is now the entity spending the money which may be allocated less efficiently than private sector spending. For example, it may be more costly for NASA (a government institution) to build and launch rockets than it is for SpaceX (a private company) because, as Which of the following describes crowding out? Government expenditures decrease private sector spending. Increasing taxes can increase private consumption. Good expenditures can drive out the bad expenditures within the economy. Government expenditures increase private sector spending.