The crowding-out effect can be mitigated if the funds from deficit spending are used for public investment.

Question

Quizplus · Accepted Answer

When funds from deficit spending are used for public investment, it can increase aggregate demand in the economy, which may encourage private investment and lead to more economic growth. This can help to counteract or mitigate the crowding-out effect, where increased government borrowing and spending can lead to higher interest rates and reduced private investment. However, whether deficit spending on public investment is effective depends on the specific circumstances and the effectiveness of the investments.

The Crowding-Out Effect Can Be Mitigated If the Funds from Deficit