Author Question: Government debt crowds out private investment because A) the government and private firms compete ... (Read 57 times)

lunatika · **on:** Jun 30, 2018

Government debt crowds out private investment because

A) the government and private firms compete in the same market for savings.
B) private firms stop borrowing money when the government enters the market.
C) the government's increased demand for loans decreases interest rates.
D) the government can order the public to buy bonds.

Question 2

In the above figure, suppose the economy is at a short-run equilibrium at point B and the interest rate is r2. Which of the following policy options for the Fed will help solve the short-run situation?

A) open market sale of government securities
B) lowering the required reserve ratio
C) lowering the differential between the discount rate and the federal funds rate
D) open market purchase of government securities