While we have a budget deficit as per the crowding out concept what would happen to interest rates and borrowing?

Question

Social Studies

Yadira

14 January, 02:19

While we have a budget deficit as per the crowding out concept what would happen to interest rates and borrowing?

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Theresa Gutierrez · Answer 1

When the economy is operating near capacity, government borrowing to finance an increase in the deficit causes interest rates to rise. Higher interest rates reduce or "crowd out" private investment, and this reduces growth.