Asked by Walid Semreen on Jul 08, 2024
Verified
If an economist says that fiscal policy "crowds out," she believes that
A) government spending has caused workers to lose their jobs.
B) government subsidies have caused a monopoly in an industry.
C) government borrowing has pushed private borrowers out of the financial market.
D) tax rates are so high that workers are encouraged to leave the labor market.
Crowds Out
Refers to the effect where increased government spending and borrowing reduce private investment in the markets.
Fiscal Policy
Governmental adjustments of its spending levels and tax rates to influence a nation's economy.
Financial Market
The marketplace where buyers and sellers interact to trade financial instruments, such as stocks, bonds, currencies, and derivatives, often within an institutional framework.
- Discuss the concepts of crowding-out and crowding-in effects, along with their consequences for individual investments and overall economic development.
Verified Answer
VT
Victor TrevinoJul 10, 2024
Final Answer :
C
Explanation :
"Crowding out" refers to the phenomenon where government borrowing increases interest rates, which in turn reduces private investment. This reduces the availability of credit for private borrowers and can push them out of the market. Therefore, choice C is the correct answer. The other choices do not accurately capture the concept of crowding out.
Learning Objectives
- Discuss the concepts of crowding-out and crowding-in effects, along with their consequences for individual investments and overall economic development.