The federal government decides to pay for the transition to private social security accounts with a one-time $1 trillion bond issue. What will be the biggest concern to businesses relative to the "crowding out" effect?

A) higher interest rates due to the new government borrowing
B) inflation resulting from more government purchases
C) a negative supply shock
D) shortage of investment due to new accounts

Question

Trang's Trang'ss · Accepted Answer

Final Answer : A, Explanation :  The crowding out effect describes the situation where increased government borrowing leads to higher interest rates, thus making it more expensive for businesses to borrow money. This could be the biggest concern for businesses as they face higher costs of borrowing, which can reduce their ability to invest in growth and expansion. Choice B is also a concern, but it may not be the biggest concern for businesses relative to interest rates. Choices C and D are not directly related to the crowding out effect.

Definitions

Learning Objectives

Learning Objectives

Related questions