"Crowding out" refers to federal government deficits financed by:

Question

Quizplus · Accepted Answer

Crowding out occurs when government deficits are financed through borrowing, leading to an increase in interest rates. Higher interest rates reduce private spending, as businesses and individuals have less money to invest or spend on goods and services. This can offset any potential benefits of government spending, thereby "crowding out" private investment and consumption. Option B is incorrect, as increasing taxes would directly reduce private spending. Option C is incorrect because buying foreign debt would not reduce government spending; it would actually increase it. Option D is also incorrect because reducing government spending would lower interest rates, not increase them, and would not be considered "crowding out."

"Crowding Out" Refers to Federal Government Deficits Financed By