Q. Which among the following is defined by any reductions in private consumption or investment that occurs because of an increase in government spending?
Answer: Crowding Out Effect
Notes: The correct answer is "Crowding Out Effect." This economic phenomenon occurs when increased government spending leads to a reduction in private sector spending. As the government borrows more to finance its expenditures, interest rates may rise, making it more expensive for businesses and consumers to borrow. This can result in decreased private investment and consumption. The term is often associated with Keynesian economics, which emphasizes the role of government in managing economic cycles.