Question
In general, government spending crowds out private investment because higher government spending leads to higher interest rates, which make it too costly for the private
In general, government spending crowds out private investment because higher government spending leads to higher interest rates, which make it too costly for the private sector to borrow. Choose all that apply.
a. This is true, and thats why governments should always limit the deficit.
b. This is not always true. Since 2008, interest rates around the world have stayed near zero despite large increases in government deficits. One of the reasons is the increased supply of government bonds.
c. It depends. As long as bonds are bought by foreigners, it doesnt matter whether more bonds get issued or not.
d. It is true as long as people think that inflation is going to stay low in the future.
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