A)increases in investment and consumption cause interest rates to? rise, reducing the ability of the government to borrow funds

Economics Dec 03, 2020

A)increases in investment and consumption cause interest rates to? rise, reducing the ability of the government to borrow funds.

B. increases in government spending cause interest rates to?fall, reducing investment and consumption.

C. decreases in government spending cause interest rates to?rise, reducing investment and consumption.

D. increases in government spending cause interest rates to?rise, reducing investment and consumption. E. increases in taxes cause interest rates to? rise, reducing investment and consumption

Expert Solution

Correct answer is part d

Increase in government spending cause interest rate to rise, reducing investment ans consumption

A higher real interest rate increases the opportunity cost of borrowing money, decreasing the amount of interest-sensitive expenditures such as investment and consumption. Thus, the government has "crowded out" investment

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