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JAMB Economics 2004 Question 25

Question 25

Public Finance

If budget deficits are financed by borrowing, the crowding-out effect can be offset by an increase in

  1. A.government expenditure
  2. B.savings
  3. C.interest rates
  4. D.exchange rates
Show the answer and explanation

Answer: B (savings)

Explanation

Government borrowing competes with private firms for loanable funds and pushes up interest rates. More savings add to the funds available, so private investment need not be squeezed out.