Higher interest rates as a result of deficit spending
A) raise 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

Higher interest rates can lead to a decrease in private sector investment due to the increased cost of borrowing money. This phenomenon is known as crowding out. Therefore, D is the best choice. A, B, and C are not correct because higher interest rates do not necessarily lead to an increase in investment spending or productivity gains and may not impact the wealth of future generations.

Higher Interest Rates as a Result of Deficit Spending