CFA Practice Question

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CFA Practice Question

Suppose that when government spending increases, firms decrease their levels of investment spending. This is an example of ______.

A. crowding out
B. forcing out
C. jamming out
Correct Answer: A

This is an example of crowding out, defined as a reduction in consumption, investment, or net exports due to an increase in government expenditures.

User Contributed Comments 5

User Comment
danlan Know what's crowding out and crowding in.
moma20 crowding out means decrease
crowding in means increase
stevelaz In out, in out, shake it all about, you do the okey cokey and ..........
DariSH It's better to memorize it like this:
Recall: I=PS+T-G;
Then just think: when G is bigger than T, it decreases I by eating a part of PS. This is a crowding out effect.
chcarnes Pretty sure it's jamming out
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