The new classical critique of activist fiscal policy is theoretically different from the crowding-out critique. crowding-out occurs when private spending in response to government spending. under the new classical critique, increased government spending leads people to their current savings in order to pay for higher taxes in the future.
a. decreases; decrease
b. increases; increase
c. decreases; increase
d. increases; decrease

C. decreases; increase

Explanation:

Although both the crowding-out critique and the classical critique both argue that more public spending (activist fiscal policy) will lead to less private spending (thus less-than-expected increase in demand for the economy to grow), the reasons they put forward are subtly different.

Crowding-out happens because government spending reduces the money supply (hence raise interest rate - the price of money) or investment opportunities to the private sector, making it difficult for the private sector to spend , hence there's less private spending.

The classical critique argues that because people anticipate that goverment will increase tax in the future to cover for the fiscal deficit, they will save more to pay for tax, also leading to less private spending.

answer; read and consider the content of the items;