The reduction in investment brought about by the increase in the interest rate caused by increased government spending is called:
A) a budget deficit.
B) fiscal policy.
C) the identification problem.
D) crowding out.

Question

Quizplus · Accepted Answer

The reduction in investment caused by increased government spending and the resulting increase in interest rates is called crowding out. This is because the government borrowing reduces the available funds for private investment and causes interest rates to rise, thereby crowding out private investment.

The Reduction in Investment Brought About by the Increase in the Interest