Question

An increase in government borrowing can: _________. allow private investment to expand. crowd out private investment in physical capital. increase the incentive to invest in technology. cause a substantial decrease in interest rates.

Answer 1

An increase in government borrowing often leads to the crowding out of private investment in physical capital by reducing financial capital available to private firms.

Step-by-step explanation:

An increase in government borrowing can potentially crowd out private investment in physical capital. This crowding-out effect happens because government borrowing can reduce the financial capital available for private firms, which affects their ability to invest in physical capital. Moreover, if a government decides to borrow for financing investments in public physical capital, like roads or water systems, it may inadvertently increase public physical capital at the expense of crowding out more beneficial private physical capital investments.

Answer 2

An increase in government borrowing can: crowd out private investment in physical capital
Phtsical capital is the type of assets that have an actual appearance (not only on paper), such as machinary, buildings, bridge, etc.
An increase in government borrowing means that more government budget is used to buy these physical capital and more private sector's budget available to use for somehting else