The crowding out effect would be lower if:
A)consumption was sensitive to changes in prices.
B)the government always ran budget deficits.
C)the interest rate was greatly affected by shifts in the demand of loanable funds.
D)investment was not sensitive to changes in the interest rates.

Question

Quizplus · Accepted Answer

The crowding out effect refers to the reduction in private investment due to an increase in government borrowing, which raises interest rates. If investment is not sensitive to changes in interest rates, then the crowding out effect would be lower because businesses would continue to invest despite higher interest rates.

The Crowding Out Effect Would Be Lower If