Crowding out occurs because the government increases the demand for loanable funds,drives up interest rates,and causes:
A) saving to rise.
B) saving to fall.
C) consumption and investment to rise.
D) consumption and investment to fall.

Question

Quizplus · Accepted Answer

When the government increases the demand for loanable funds, it drives up interest rates, making it more expensive for private individuals and businesses to borrow money. As a result, consumption and investment tend to fall as people and businesses cut back on spending. This is known as crowding out. Therefore, the correct choice is D.

Crowding Out Occurs Because the Government Increases the Demand for Loanable