The crowding-out effect of expansionary fiscal policy suggests that
A)tax increases are paid primarily out of saving and therefore are not an effective fiscal device.
B)increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.
C)it is very difficult to have excessive aggregate spending in the U.S.economy.
D)consumer and investment spending always vary inversely.

Question

Quizplus · Accepted Answer

The crowding-out effect occurs when increased government spending leads to higher interest rates, which can reduce private investment.

The Crowding-Out Effect of Expansionary Fiscal Policy Suggests That