The crowding-out effect refers to the possibility that
A)when used simultaneously, expansionary fiscal and monetary policies are counterproductive.
B)the asset demand for money varies inversely with the interest rate.
C)deficit financing will increase the interest rate and reduce investment.
D)an increase in the supply of money will result in a decline in velocity.

Question

Quizplus · Accepted Answer

The crowding-out effect occurs when government borrowing leads to higher interest rates, which can reduce private investment.

The Crowding-Out Effect Refers to the Possibility That