Government borrowing may crowd out borrowing by private interests because

Question

Quizplus · Accepted Answer

When the government borrows funds, it increases the demand for loanable funds, which may result in an increase in the equilibrium interest rate. If the interest rate increases, it may become less attractive for private interests to borrow funds, which can lead to crowding out. option A is incorrect because funds can be available at different interest rates. Option C is incorrect because a shift in the supply curve would be caused by changes in the savings behavior of households, not government borrowing.

Government Borrowing May Crowd Out Borrowing by Private Interests Because