Assertion (A): Heavy government borrowing can crowd out private investment.
Reason (R): Government borrowing uses up savings that would otherwise be lent to private firms, which can push up interest rates.

Both A and R are true, and R is the correct explanation of A.Correct answerYour answerBoth A and R are true, but R is not the correct explanation of A.Correct answerYour answerA is true, but R is false.Correct answerYour answerA is false, but R is true.Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

Less saving left over and higher interest rates make private firms invest less. R explains A.

Concept: Crowding out
Typical timeTypical: 100 s
Your timeYours: —

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Ten questions from Budget Deficits, at your own pace.

Assertion (A): Heavy government borrowing can crowd out private investment.Reason (R): Government borrowing uses up savings that would otherwise be lent to private firms, which can push up interest rates.

Explanation

Assertion (A): Heavy government borrowing can crowd out private investment.
Reason (R): Government borrowing uses up savings that would otherwise be lent to private firms, which can push up interest rates.