The crowding out of private investment is associated with
A)a reduction in profitable investment opportunities due to a recession
B)increased competition from foreign investors in U.S.markets
C)higher interest rates resulting from a declining rate of saving
D)higher interest rates resulting from increased borrowing by the federal government
E)higher interest rates resulting from restrictive monetary policy

Question

Quizplus · Accepted Answer

The crowding out of private investment refers to a situation in which increased borrowing by the federal government leads to higher interest rates, which in turn reduces the amount of investment spending by private firms. This is because higher interest rates make borrowing more expensive for firms, and thus reduces their willingness to invest in new projects or expand their operations. Therefore, choice D is the correct answer.

The Crowding Out of Private Investment Is Associated with