The "crowding-out" effect refers to the fact that
A)fiscal policy cannot be used to shift the IS curve.
B)rising interest rates tend to accompany an expansionary fiscal policy.
C)there may be a liquidity trap.
D)All of these.

Question

Quizplus · Accepted Answer

The "crowding-out" effect refers to the tendency for rising interest rates to accompany an expansionary fiscal policy, as the government increases its borrowing to finance spending. This can "crowd out" private investment and consumption, as higher interest rates make it more expensive for individuals and firms to borrow, reducing their ability to spend and invest. Options A and C are not directly related to the "crowding-out" effect.

The "Crowding-Out" Effect Refers to the Fact That