Question

What term describes the idea that public borrowing drives up real interest rates, thereby reducing private investment spending?

-Income distribution
-Crowding-out effect
-Economic incentives
-External public debt

Answer 1

The term that describes the idea that public borrowing drives up real interest rates, thereby reducing private investment spending, is the crowding-out effect.

Step-by-step explanation:

The term that describes the idea that public borrowing drives up real interest rates, thereby reducing private investment spending, is the crowding-out effect. When the government borrows a large amount of money, it increases the demand for loanable funds, causing interest rates to rise. Higher interest rates discourage private investment, as businesses and households find it more expensive to borrow money for investment purposes. This phenomenon is known as the crowding-out effect.