If interest rates adjust to equate savings and investment, then an expansionary fiscal policy is:
A)more likely to increase interest rates and less likely to crowd out investment.
B)more likely to increase interest rates and more likely to crowd out investment.
C)less likely to increase interest rates and less likely to crowd out investment.
D)less likely to increase interest rates and more likely to crowd out investment.

Question

Quizplus · Accepted Answer

Expansionary fiscal policy, which involves increased government spending or decreased taxes, typically leads to higher demand for funds. This increased demand can push interest rates up as the government borrows more, making borrowing more expensive for private investors. This process can lead to crowding out, where private investment is reduced because of the higher interest rates.

If Interest Rates Adjust to Equate Savings and Investment, Then