Which one of the following might offset a crowding-out effect of ﬁnancing a large public debt?
A) a decline in net exports
B) an increase in public investment
C) a decrease in the money supply
D) a decline in public investment

Question

Quizplus · Accepted Answer

Public investment can help offset the crowding-out effect because it can stimulate economic growth and increase the demand for loans. This can lead to higher interest rates, but also more investment in the private sector, helping to balance out the decrease in private investment caused by the increase in public debt. A decline in net exports, a decrease in the money supply, and a decline in public investment would all likely exacerbate the crowding-out effect.

Which One of the Following Might Offset a Crowding-Out Effect