The crowding-out effect implies that budget deficits will

Question

Quizplus · Accepted Answer

The crowding-out effect occurs when the government borrows to finance its budget deficit, causing an increase in the demand for loanable funds, which in turn increases the interest rates. This increase in interest rates reduces private investment, thus lowering the future stock of private capital. As a result, the long-term productivity of workers and income levels may also decrease. Therefore, option A is the correct option.

The Crowding-Out Effect Implies That Budget Deficits Will