Question

The crowding-out effect implies that restrictive fiscal policy will increase aggregate demand and employment. lead to a significant increase in the natural rate of unemployment. be highly effective against inflation. reduce real interest rates.

Answer 1

The crowding-out effect implies that restrictive fiscal policy will reduce real interest rates.

Option: D

Explanation:

The crowding out effect is the circumstances where greater interest rates consequences gives output of a decline in private investment expenditure so as to dampen the initial rise in overall investment expenditure. Authorities often embraces a restrictive fiscal-policy approach and raises spending to stimulate economic activity. This contributes to interest-rate rises. Higher interest rates have a impact on private investment choices. A high magnitude of the crowding-out impact can also result in lower economic revenue.