Some economists argue that a rise in the interest rate,brought about by a rise in government borrowing in the loanable funds market to finance the deficit,brings in foreign funds in search of the higher interest rate return.This,in turn,dampens the rise in the interest rate.If this is true as far as it goes,there will be __________ crowding out than there would be if foreign funds did not flow into the country.

Question

Quizplus · Accepted Answer

If foreign funds flow into the country, there will be less crowding out because the increased supply of loanable funds will help to offset the government's increased demand for funds, leading to a smaller increase in interest rates. Therefore, the answer is B - less crowding out.

Some Economists Argue That a Rise in the Interest Rate,brought