The crowding-out effect suggests that:
a. Restrictive fiscal policy is an effective weapon against inflation.
b. Expansionary fiscal policy will be a highly effective weapon for fighting a recessionary downturn
c. A budget surplus will cause the demand for loanable funds to decline, interest rates to rise, and aggregate demand to decrease.
d. Budget deficits that lead to higher interest rates reduce private investment spending.

Budget deficits that lead to higher interest rates reduce private investment spending.

Explanation:

Crowding out can best be described as a condition in which the intake of personal goods and services, investments of organizations are lowered, this could be due to an increase in government expenditures which takes up the available resources thereby leading to an increase in interest rates.

When the government of a particular country is involved in borrowing it may lead to a major effect on the economy of that country such as an increase in the interest rate. When this takes place, the economy’s lending capacity is absorbed so that various organizations would not likely to want to invest more capital in new ventures.

budget deficits that lead to higher interest rates reduce private investment spending-D

Explanation: Crowding out effect is an economic theory that argues the fact that rising public sector spending brings down private sector spendingand it depends on three main reasons which include economics, social welfare, and infrastructure.

Concerning budget deficit, it argues that it can lead to higher interest rates and therefore reduce private investment spending.

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