When government borrowing raises interest rates and reduces private investment, the effect is known as:
Correct answer: B. Crowding out
- A. Liquidity preference
- B. Crowding out
- C. Cost-push inflation
- D. Balance of payments adjustment
Explanation
Crowding out occurs when public borrowing places upward pressure on interest rates or absorbs available financial resources, discouraging private investment. Cost-push inflation concerns production costs, not the displacement of private investment.
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About Economy of Pakistan
Pakistan's economy is examined through agriculture, industry, services, trade, remittances, employment, population, poverty and regional development. The topic also covers GDP and national income, inflation, fiscal and monetary policy, taxation, public debt, the balance of payments, energy constraints and structural challenges, including the role of the State Bank and development planning.
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