Final answer:
The primary concern for businesses regarding the crowding out effect from a $1 trillion bond issue by the government for private social security accounts is higher interest rates due to increased government borrowing (option A).
Step-by-step explanation:
The question asks about the biggest concern to businesses related to the "crowding out" effect if the federal government decides to pay for the transition to private social security accounts with a one-time $1 trillion bond issue. The biggest concern for businesses is A. Higher interest rates due to the new government borrowing. Crowding out occurs when increased government borrowing absorbs the available financial capital, leaving less for private investment.
When the government issues a large amount of bonds to finance budget deficits or other expenditures, this increases the demand for financial capital. If private savings and foreign investment inflows do not change, this leads to higher interest rates. Higher interest rates may make it more expensive for businesses to borrow money for investment, potentially slowing down economic growth.
Historically, examples such as the Great Recession show that inflation or a decrease in private investment does not always accompany government deficits. Nonetheless, in a normalizing economy, significant government borrowing may apply upward pressure on interest rates, thereby resulting in the crowding out effect and posing a potential issue for businesses seeking to invest in physical and human capital.