Principles of Macroeconomics 7th Edition

Published by South-Western College
ISBN 10: 1-28516-591-8
ISBN 13: 978-1-28516-591-2

Chapter 13 - Saving, Investment, and the Financial System - Questions For Review: 6

Answer

Government budget deficit occurs when the government spending exceeds its revenues. This is called "crowding out" on the loanable funds market. This will raise interest rate, reduce investment spending, and slow or even decrease economic growth!

Work Step by Step

This question tests your knowledge of how government spending affects the loanable funds market( shift left) and this causes crowding out of investment spending due to higher interest rates.
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