Borrowing to finance the increases in government expenditures
A) reduces current private investment expenditures.
B) increases interest rates.
C) reduces growth in the nation's private capital stock.
D) all of the above.

Question

Quizplus · Accepted Answer

When the government borrows to finance increases in government expenditures, it competes with private investors for available funds, which increases interest rates. This, in turn, makes it more expensive for businesses to borrow and invest, which reduces current private investment expenditures. Additionally, if the government continues to borrow excessively, it may crowd out private investment entirely, meaning that there is less money available for businesses to invest in capital goods, reducing the growth in the nation's private capital stock. Therefore, all of the choices are correct.

Borrowing to Finance the Increases in Government Expenditures