Question

The crowding-out effect recognizes that if the government sells bonds to finance spending, it can cause interest rates to _____ investment. rise, thereby stimulating fall, thereby stimulating rise, thereby reducing fall, thereby reducing

Answer 1

rise, thereby reducing

Step-by-step explanation:

The crowding out effect states that increased government borrowing can lead to a fall in private investment. Increased government borrowing leads to a rise in real interest rate and this discourages private investment.

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