Crowding-out results from
A) an increase in the supply of money and a decrease in the velocity of money.
B) a decrease in the supply of money and an increase in the velocity of money.
C) the inverse relationship between the supply of money and nominal GDP.
D) deﬁcit ﬁnancing that increases interest rates and reduces investment.

Question

Quizplus · Accepted Answer

Crowding-out occurs when the government borrows money to finance its deficit spending, leading to an increase in interest rates. This results in a decrease in private investment as businesses and individuals are discouraged from borrowing due to higher borrowing costs. Therefore, choice D, which refers to deficit financing that increases interest rates and reduces investment, best describes crowding-out.

Crowding-Out Results from