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Course: AP®︎/College Macroeconomics > Unit 5

Lesson 4: Crowding out

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Crowding out

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An economy has a budget deficit, and you want to show the impact of the budget deficit on the real interest rate.

What model would you use, and what would be the impact on the interest rate?

(Choice A)
The money market; the real interest rate is not impacted
(Choice B)
The loanable funds market; real interest rate decreases
(Choice C)
The AD-AS model; the real interest rate is not impacted
(Choice D)
The money market; the real interest rate decreases
(Choice E)
The loanable funds market; real interest rate increases