Crowding out occurs because expansionary fiscal policy:
A) appreciates the exchange rate.
B) lowers foreign income.
C) lowers the interest rate.
D) increases net exports.

Question

Quizplus · Accepted Answer

Crowding out occurs when government spending increases, leading to higher interest rates, which appreciates the exchange rate. This makes domestic goods more expensive for foreigners, reducing exports.

Crowding Out Occurs Because Expansionary Fiscal Policy