Ceteris paribus, deficit spending results in higher interest rates, which can
A)accelerate growth in investment spending.
B)ultimately have a positive impact on productivity gains and society's standard of living.
C)increase the wealth of future generations.
D)crowd out private investment.

Question

Quizplus · Accepted Answer

Deficit spending increases the demand for borrowed funds, leading to higher interest rates. This makes it more expensive for private investors to borrow money, leading to a decrease in private investment. Therefore, deficit spending can crowd out private investment, which is detrimental to economic growth and long-term productivity gains.

Ceteris Paribus, Deficit Spending Results in Higher Interest Rates, Which