In macroeconomic policy, what constitutes the 'crowding-out effect' (učinek izrivanja)?
Answer and explanation
Correct answer: C. Increased government borrowing raises interest rates, which dampens private investment spending
- Step 1: When a government finances a large budget deficit by issuing sovereign bonds, it increases loanable funds demand, pushing up market interest rates and crowding out private corporate investment. Answer: Increased government borrowing raises interest rates, which dampens private investment spending. Why not the others: Rejecting deposits is bank policy, retail competition is market displacement, and labor union membership is labor organization.
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