The crowding-out effect refers to a situation where
A)an easy fiscal policy reduces interest rate and increases investment.
B)an easy monetary policy reduces interest rate and increases investment.
C)an easy fiscal policy increases interest rate and decreases investment.
D)an easy monetary policy increases interest rate and decreases investment.

Question

Quizplus · Accepted Answer

The crowding-out effect occurs when an easy fiscal policy (such as increased government spending) leads to an increase in interest rates. This is because the increased demand for funds from the government competes with private investment demand for funds, driving up interest rates and decreasing investment.

The Crowding-Out Effect Refers to a Situation Where