- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 3. Fiscal Policy
- Subject 4. Fiscal Policy Implementation
CFA Practice Question
The crowding-out model implies that the budget deficit will ______
A. cause inflation.
B. increase the real interest rate.
C. reduce supply.
Explanation: The crowding-out effect refers to a reduction in private spending due to a higher real interest rate generated by government borrowing. The model does not imply anything about inflation, supply, or resource prices.
User Contributed Comments 1
| User | Comment |
|---|---|
| matzaala | Increased Government borrowing increases the real interest rate for private borrowers. |