Why might fiscal stimulus crowd out investment? Fiscal stimulus that increases an existing government budget deficit ______ loanable funds, which ______ investment. A. decreases the demand for; decreases the real interest rate and increases B. increases the demand for; decreases the real interest rate and increases C. increases the demand for; increases the real interest rate and decreases D. decreases the supply of; increases the real interest rate and decreases
C. increases the demand for; increases the real interest rate and decreases
Explanation:
Market congestion is an event that occurs when government involvement in one sector significantly affects the rest of the market, the supply or demand side of the market.
A type of expansionary economic policy is often discussed when the private sector reduces investment costs. Government spending "out" investments because it seeks more borrowable funds and increases interest rates and therefore reduces investment spending.
This basic analysis has been extended to multiple channels, which can change the overall output very little or very little.
