According to the traditional (crowding-out)view,which of the following is most likely to result if a substantial portion of government expenditures is financed by borrowing rather than taxation?

Question

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According to the traditional (crowding-out) view, if the government finances a substantial portion of its expenditures by borrowing rather than taxation, it will increase the demand for loanable funds and thus raise interest rates. This increase in interest rates will lead to a reduction in private domestic investment as borrowing becomes more expensive. Therefore, choice C, higher interest rates and a reduction in private domestic investment, is the most likely result.

According to the Traditional (Crowding-Out)view,which of the Following Is Most