According to the crowding-out view, budget deficits will:

Question

Quizplus · Accepted Answer

The crowding-out view suggests that government spending financed by budget deficits will increase the demand for loanable funds, which will push up interest rates and reduce the amount of funds available for private investment. This leads to a decrease in capital accumulation and economic growth in the long run. Choice A is incorrect because budget deficits will increase demand for loanable funds and push up interest rates, not reduce them. Choice C is incorrect because budget deficits do not directly affect the investments of foreigners in the United States. Choice D is incorrect because budget deficits reduce the amount of funds available for investment, so it is less likely to increase the capital stock available to future generations.

According to the Crowding-Out View, Budget Deficits Will