The response of investment spending to an increase in the government budget deficit is called

Question

Quizplus · Accepted Answer

An increase in the government budget deficit leads to a higher demand for loanable funds which results in an increase in interest rates. This increase in interest rates reduces private investment, leading to crowding out. Therefore, the correct response of investment spending to an increase in the government budget deficit is called crowding out.

The Response of Investment Spending to an Increase in the Government