QuestionJune 28, 2025

According to classical economists, why do government expenditures NOT induce economic growth? the labor theory of value supply and demand crowding out effect institutional theory

According to classical economists, why do government expenditures NOT induce economic growth? the labor theory of value supply and demand crowding out effect institutional theory
According to classical economists, why do government
expenditures NOT induce economic growth?
the labor theory of value
supply and demand
crowding out effect
institutional theory

Solution
4.4(376 votes)

Answer

Crowding out effect Explanation 1. Identify the key concept Classical economists argue that government expenditures do not induce economic growth due to the "crowding out effect." 2. Explain the crowding out effect The crowding out effect occurs when increased government spending leads to higher interest rates, which reduces private investment. 3. Connect to economic growth Reduced private investment can slow down economic growth because private sector investments are typically more efficient and productive than government spending.

Explanation

1. Identify the key concept<br /> Classical economists argue that government expenditures do not induce economic growth due to the "crowding out effect."<br /><br />2. Explain the crowding out effect<br /> The crowding out effect occurs when increased government spending leads to higher interest rates, which reduces private investment.<br /><br />3. Connect to economic growth<br /> Reduced private investment can slow down economic growth because private sector investments are typically more efficient and productive than government spending.
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