Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $700 million. this is an example of

a. incomplete crowding out.

b. complete crowding out.

c. zero crowding out.

d. a and c

e. none of the above

b. complete crowding out

Explanation:

Expansionary Fiscal Policy is increase in government's net public spending. This leads to increase in Aggregate Demand & hence increase in Income.

However, this government investment effect might be nullified by  simultaneous decrease in private investment. It is referred to 'Crowding Out' effect. It implies : increased government spending increases income, which increase demand for loanable funds. Such loan funds demand if not accompanied by increase in money supply, leads to increase in interest rates. This finally leads to reduction in private investment.

Complete crowding out effect is when entire government investment spending amount is offset by  equal fall in private investment spending. There is no final net increase in total investment, aggregate demand & income. Given case : 'The government increases spending on public education by $700 million and individual spending on private education drops by $700 million' is an example of 'Complete Crowding Out'

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