The way in which government spending is supposed to reduce investment is by increasing ?
Correct answer: D. interest rates
- A. incomes
- B. overseas investment
- C. imports
- D. interest rates
Explanation
Expansionary government spending can increase demand for loanable funds, pushing the interest rate upward and reducing private investment. This reduction is the interest-rate channel of 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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