| This one is straight out of the transparencies. Remember
that an inrease in government expenditure forces down either consumption
or investment, or both. The balance between the reduction in consumption
and the reduction in investment depends on their relative sensitivities
to the real rate of interest. Although a loss of consumption may also be
viewed as bad, remember that the term "crowding out" has been reserved
for the question of how much investment goes down when government
expenditure goes up. |