Question

Crowding Out. The supply of loanable funds curve SLF1 shifts to SLF2. This shift implies that: Group of answer choices national savings has decreased. private savings has decreased. national investment has decreased. private savings has increased.

Answer 1

Answer:

Private savings has decreased.

Explanation:

The crowding out effect occurs when government intervention in the economy reduces either private investment or saving.

In the case of saving, this can occur if the government crowds out private investment by taking up large loans that cover most of the market for loanable funds. This will in turn reduce the incentive or capacity of private investors to save, reducing private saving, and decreasing the supply of loanable funds, causing the shift in the curve.