The decrease in private consumption and investment that occurs when the government borrows more is called:
A) collateral damage.
B) the substitution effect.
C) the wealth effect.
D) the crowding-out effect.

Question

Quizplus · Accepted Answer

The decrease in private consumption and investment that occurs when the government borrows more is called the crowding-out effect. This occurs because when the government borrows more, it increases demand for credit, which in turn increases interest rates. This increase in interest rates makes it more expensive for consumers and businesses to borrow, leading to a decrease in overall consumption and investment.

The Decrease in Private Consumption and Investment That Occurs When