The private sector will have to borrow at the same interest rates that the government borrows at. As the government increases its borrowing, this leads to _____.
A) offsetting changes
B) the multiplier effect
C) ﬁnancial crowding out
D) a government surplus

Question

Quizplus · Accepted Answer

Financial crowding out occurs when increased government borrowing leads to higher interest rates, which in turn makes it more expensive for the private sector to borrow. This can reduce private investment because of the higher cost of borrowing.

The Private Sector Will Have to Borrow at the Same