Economics · Fiscal Policy
How does a high fiscal deficit lead to the negative 'crowding out' effect in an economy?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1By strengthening the domestic currency to an extent that makes all domestic exports uncompetitive
- 2By completely eliminating the demand for consumer goods across rural markets
- 3By causing excessive government market borrowing, which reduces loanable funds and raises interest rates for private investors✓
- 4By forcing foreign institutional investors to take complete control of domestic businesses
Correct answer
By causing excessive government market borrowing, which reduces loanable funds and raises interest rates for private investors
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