Question

The crowding-out effect refers to the possibility that:

a. a deficit, financed by borrowing in the capital markets, will increase the interest rate and reduce investment in the private sector.
b. an increase in the supply of money will induce a decline in real spending.
c. when used simultaneously, expansionary fiscal and monetary policies are counter-productive.
d. the speculative demand for money varies inversely with the interest rate.

Answer 1

a. a deficit, financed by borrowing in the capital markets, will increase the interest rate and reduce investment in the private sector.

Step-by-step explanation:

Crowding out effect is when government borrowing from the capital markets leads to an increase in interest rate. this makes it more expensive for private sector to borrow and this reduces investment by private sector