Crowding out occurs when expansionary fiscal policy causes
Correct answer: A. Higher interest rates that reduce private investment
- A. Higher interest rates that reduce private investment
- B. Lower interest rates that increase private investment
- C. Higher exports that reduce domestic production
- D. Lower prices that increase the real money supply
Explanation
Government borrowing can raise the demand for loanable funds and put upward pressure on interest rates. Higher rates may then reduce private investment, which is known as crowding out.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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