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- Macroeconomic Policy Toolseconomics-mcqs › macroeconomic-policy-tools
- Published
- 31 May 2019
- Last updated
- 28 May 2026
Which economic phenomenon is illustrated when higher government spending boosts income, shifts the demand for money to the right, increases interest rates, and consequently reduces investment?
Multiple choice question for Macroeconomic Policy Tools. Select an option, then review the explanation below.
Explanation
The scenario describes the crowding-out effect, where increased government expenditure raises income and money demand, leading to higher interest rates that discourage private investment.
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Practice related questions from the same subject.
- 1.Which of the following functions as an automatic economic stabilizer?
- 2.If the government raises its spending by Rs16 billion and the multiplier effect outweighs the crowding out effect, what will be the impact on the economy?
- 3.What is the effect of an increase in the marginal propensity to consume (MPC) on the multiplier?
- 4.What is the immediate effect of a rise in government expenditure on the economy?
- 5.What is the primary impact of an increase in the money supply?