The crowding-out effect suggests that
A)tax increases are paid primarily out of saving and therefore are not an effective fiscal device.
B)government borrowing to finance the public debt increases the real interest rate and reduces private investment.
C)it is very difficult to have excessive aggregate spending in a capitalist economy.
D)consumer and investment spending always vary inversely.

Question

Quizplus · Accepted Answer

The crowding-out effect occurs when government borrowing leads to higher real interest rates, which in turn reduces private investment.

The Crowding-Out Effect Suggests That