Question

Multiple Select Question
Select all that apply

All else equal, which of the following are potentially crowded out as a result of expansionary fiscal policy?
Multiple select question.

Exports

Investment

Interest-sensitive consumption

Government spending

Answer 1

In the context of expansionary fiscal policy, the following options can be potentially crowded out:

- **Investment**: When the government increases spending and runs a budget deficit, it may lead to higher interest rates, which can crowd out private investment as borrowing costs rise.

- **Interest-sensitive consumption**: Similar to investment, if interest rates rise due to government borrowing, consumers may find it more expensive to finance big-ticket items (like homes or cars), leading to a decrease in this type of consumption.

**Exports** and **Government spending** generally do not get crowded out in the same way. While exports may be impacted by changes in exchange rates or global demand, they are not directly crowded out by domestic expansionary fiscal policies. Government spending itself is part of the fiscal policy being implemented, so it cannot be "crowded out" in the traditional sense.

So the correct selections are:
- Investment
- Interest-sensitive consumption