Crowding out refers to the situation in which Group of answer choices borrowing by the federal government raises interest rates and causes firms to invest less. foreigners sell their bonds and purchase U. S. goods and services. borrowing by the federal government causes state and local governments to lower their taxes. increased federal taxes to balance the budget causes interest rates to increase and consumer credit to decrease.

Question

Penny

Business

4 March, 14:52

Crowding out refers to the situation in which Group of answer choices borrowing by the federal government raises interest rates and causes firms to invest less. foreigners sell their bonds and purchase U. S. goods and services. borrowing by the federal government causes state and local governments to lower their taxes. increased federal taxes to balance the budget causes interest rates to increase and consumer credit to decrease.

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Kira Morton · Answer 1

Crowding out refers to the situation in which borrowing by the federal government raises interest rates and causes firms to invest less - option A.

Explanation:

Generally, a condition whereby a persistent government borrowing decreases the likelihood of the government repaying the borrowed loan or credit and consequently raises the interest rate is referred to as Crowding out. This situation would cause a decline in private investment level by the companies or firms.

Therefore, borrowing by the federal government raises interest rates, causing firms to invest less is the correct answer.