If an increase in the budget deficit reduces national saving and investment we have witnessed a demonstration of ?
Correct answer: C. crowding out
- A. intermediation
- B. equity finance
- C. crowding out
- D. the investment fund effect
Explanation
Crowding out occurs when a larger budget deficit reduces national saving, raises borrowing pressure and interest rates, and thereby lowers private investment. Intermediation only describes the process of transferring funds between savers and borrowers.
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