The phenomenon of crowding-out suggests that the positive impact of budget deficits on economic activity are reduced by ________.

Question

Quizplus · Accepted Answer

Crowding-out occurs when increased government borrowing leads to higher interest rates, which reduces private investment spending and consumption. This reduces the positive impact of budget deficits on economic activity. Choice A is incorrect as the impact of government spending on the environment is not directly related to crowding-out. Choice B is also incorrect as an increase in national savings can actually lead to increased investment and economic activity. Choice D is partially correct as pork barrel projects may divert resources away from more productive uses, but it is not the main driver of crowding-out.

The Phenomenon of Crowding-Out Suggests That the Positive Impact of Budget