When a rise in the budget deficit leads to a decline in both national saving and investment, which economic phenomenon is being illustrated?

Multiple choice question for Stocks. Select an option, then review the explanation below.

Explanation

An increase in the budget deficit that causes national saving and investment to fall exemplifies the crowding out effect, where government borrowing reduces the funds available for private investment.

Practice related questions from the same subject.

1.What is the effect of an increase in the budget surplus on the market for loanable funds?
2.What happens to real interest rates and investment if Pakistani citizens become less future-oriented and reduce their savings at every real interest rate?
3.What effect does a rise in the budget deficit have on public savings?
4.What is the effect of a larger budget deficit on the real interest rate and the demand for loanable funds used for investment?
5.Which combination of government policies is most effective in promoting economic growth?

When a rise in the budget deficit leads to a decline in both national saving and investment, which economic phenomenon is being illustrated?

Explanation

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