If a federal budget deficit causes crowding out,_____.
A)real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because the marginal propensity to consume decreases
B)real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because investment decreases
C)interest rates fall,reducing the burden of the debt
D)firms become more willing to invest
E)interest rates fall,so that decreases in investment and government purchases of goods and services exactly offset the expansionary effect of the deficit

Question

Quizplus · Accepted Answer

Crowding out occurs when an increase in government spending financed by a deficit leads to higher interest rates, which in turn reduces private investment. As a result, real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because investment decreases.

If a Federal Budget Deficit Causes Crowding Out,_____