If Crowding Out Occurs in the Long Run and the Government

question 154

Multiple Choice

If crowding out occurs in the long run and the government increases spending for infrastructure projects such as roads and bridges, then the additional government spending:

• A) decreases total consumption spending in the economy.
• B) replaces a larger amount of private investment.
• C) enhances private investment by the same amount.
• D) replaces an equivalent amount of private investment.

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Definitions:

Prospect Theory

A behavioral economic theory that describes how people make choices when faced with uncertain outcomes, emphasizing the value of gains and losses rather than final outcomes.

Default Options

Pre-selected choices or settings designed to simplify decision-making by assuming a standard action unless an alternative is specified.

Status Quo Bias

A cognitive bias that leads individuals to prefer things to stay the same by resisting change or new alternatives.

Behavioral Economics

A field of economic research that examines how psychological, cognitive, emotional, cultural, and social factors affect economic decisions made by individuals and institutions.