Question

a. In which instance would "crowding out" likely become a concern? Prior-year budget surpluses allow the government to use saved funds to reduce taxes. In order to increase spending on infrastructure, the federal government decides to borrow funds. O A balanced budget law prevents the government from taking fiscal action during a recession. b. What becomes more difficult if "crowding out" occurs due to fiscal action? Making economic investments Purchasing stocks and other financial investments Saving income for future purchases

Answer 1

a) Crowding out will occur when the government is borrowing and that will increase the interest rate in the market, the answer is "B" as government borrowing will increase the interest rate as the government borrowing rises.

b) "A"

When there is a crowding out in the market then making an economic investment is difficult because the interest rate rises.