Increased government debt can lead to higher interest rates and, as a result, crowding out of private investment spending. In terms of borrowing (debt-spending), what will offset the effect of crowding out in the long run so that government debt poses less of a problem to the economy?

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21 April, 19:59

Increased government debt can lead to higher interest rates and, as a result, crowding out of private investment spending. In terms of borrowing (debt-spending), what will offset the effect of crowding out in the long run so that government debt poses less of a problem to the economy?

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Amiah Macdonald · Answer 1

1. Debt-spending on education

2. Debt spending on highways and ports

3. Debt-spending on research and development

Explanation:

Following are the steps which must be taken to offset the effect of crowding out in long-run. These steps are critical. The first step is government should spend more on education. Likewise, the debt spending on highways and port is critical, that is to develop infrastructure to restructure the economy. The last step is to spend government debt on research and development process.