Question

Suppose a government finances its expansionary fiscal policy by borrowing from the public. Joseph is concerned that this will increase the demand for loanable funds, drive up interest rates, and leave less loanable money available for consumers and businesses. Joseph is concerned about the: A) boomberang effect. B) expansionary countereffect. C) ricochet effect. D) crowding-out effect.

Answer 1

D) crowding-out effect.

Step-by-step explanation:

In crowding out effect, government borrowing reducing private investment by increasing the interest rate.

Whats is the crowding effect? The crowding out effect is an economic theory arguing that rising public sector spending drives down or even eliminates private sector spending.