Question

When crowding out occurs, higher government spending results in higher interest rates, which in turn results in:

a. higher inflation.
b. a larger debt ceiling.
c. more tax revenues.
d. less consumption and investment.

Answer 1

B. a larger debt ceiling.

Step-by-step explanation:

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

Answer 2

b. a larger debt ceiling

Step-by-step explanation:

Government spending is a situation where the government supports businesses with cash or other forms of capital in capital projects.

Therefore, crowding out effect happens when increased government spending makes for a spike in rates in the economy.

As a result of this, this results in b. a larger debt ceiling because the government is increasing the spending on private businesses.