The crowding-out effect can drive up interest rates, which _____ consumer spending on durable goods and _____ business investment.

Question

Quizplus · Accepted Answer

When the government borrows money, it increases the demand for loanable funds, which can drive up interest rates. This can lead to a reduction in consumer spending on durable goods and business investment, as borrowing becomes more expensive. This is known as the crowding-out effect. Therefore, the correct option is B, which states that crowding-out effect reduces consumer spending on durable goods and business investment.

The Crowding-Out Effect Can Drive Up Interest Rates, Which _____