If the government has a budget deficit, crowding out might occur. Crowding out leads to all of the following EXCEPT
A) a higher real interest rate.
B) a decreased quantity of investment.
C) a smaller capital stock in the future.
D) decreased private saving.

Question

Quizplus · Accepted Answer

Crowding out occurs when government spending increases, leading to higher interest rates, which then reduces investment spending by the private sector. This does not directly lead to decreased private saving; in fact, higher interest rates could encourage more saving.

If the Government Has a Budget Deficit, Crowding Out Might