Which of the following is a correct description of the crowding-out effect of de

Question

Which of the following is a correct description of the crowding-out effect of deficit spending

a. The buying of government bonds leads to lower interest rates, thereby reducing private investment.

b. The selling of government bonds leads to higher interest rates, thereby reducing private investment.

c. The selling of government bonds leads to lower interest rates, thereby reducing private investment.

d. The buying of government bonds leads to higher interest rates, thereby reducing private investment.

Explanation / Answer

Crowding out effect means raising of spending in public sector will eleminates spending in private sector, deficit spending means the amount by which the government spending exceeds revenue,-the selling of govt bonds leads to higher interest rates,thereby reducing private investment.

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