The crowding out effect recognizes that if the government sells bonds to finance spending,it can cause interest rates to ___________ investment.

Question

Quizplus · Accepted Answer

When the government sells bonds to finance its spending, it increases the demand for loanable funds, putting upward pressure on interest rates. This makes it more expensive for businesses and individuals to borrow money for investment, leading to a reduction in investment. Therefore, the correct choice is C - rise, reducing.

The Crowding Out Effect Recognizes That If the Government Sells