Which of the following is an example of crowding out?

(A) a consumer paying cash to buy a new TV for $1000, leading to a greater than $1000 increase in GDP

(B) when the government uses excess tax revenues to increase the productive capacity of the nation

(C) a firm that chooses not to borrow money to invest in new machinery because government borrowing has contributed to high interest rates

(D) excess tax revenue flooding the market for loanable funds, causing firms to borrow less

Question

Business

Emanuel Shea

18 May, 22:48

Which of the following is an example of crowding out?

(A) a consumer paying cash to buy a new TV for $1000, leading to a greater than $1000 increase in GDP

(B) when the government uses excess tax revenues to increase the productive capacity of the nation

(C) a firm that chooses not to borrow money to invest in new machinery because government borrowing has contributed to high interest rates

(D) excess tax revenue flooding the market for loanable funds, causing firms to borrow less

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Answers (1)

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Draven Frederick · Answer 1

Answer: (C) a firm that chooses not to borrow money to invest in new machinery because government borrowing has contributed to high interest rates

Explanation: Due to government's excessive borrowing and spending and a decrease in taxes, this causes a rise in interest rates and leads to crowding out.