The crowding-out effect suggests that government borrowing to finance a deficit will cause

Question

Quizplus · Accepted Answer

The crowding-out effect suggests that when the government borrows to finance a deficit, it increases the demand for loanable funds, leading to an increase in interest rates. This increase in interest rates reduces investment by the private sector, which may result in a decrease in economic growth. Therefore, option A is correct as it describes the crowding-out effect. Options B, C, and D are not related to the crowding-out effect.

The Crowding-Out Effect Suggests That Government Borrowing to Finance a Deficit