When fiscal policy is funded by issuing bonds,government spending primarily crowds out:
A) velocity.
B) consumer spending.
C) investment.
D) real growth.

Question

Quizplus · Accepted Answer

When the government funds its fiscal policies by issuing bonds, it typically increases the demand for loanable funds, which leads to higher interest rates. Higher interest rates can make it more expensive for businesses to borrow money, which tends to  discourage capital investment, crowding out private investment. This reduces investment, resulting in a decrease in economic growth.

When Fiscal Policy Is Funded by Issuing Bonds,government Spending Primarily