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Exam ICWIM Topic 1 Question 162 Discussion

Actual exam question for CISI's ICWIM exam
Question #: 162
Topic #: 1
Government spending, that is financed through borrowing, within an expansionary fiscal policy can have the effect of:

Suggested Answer: A Vote an answer

Expansionary fiscal policy involves the government increasing spending and or reducing taxes to stimulate aggregate demand. If higher government spending is financed by borrowing, the government competes with the private sector for available loanable funds. This can put upward pressure on market interest rates, particularly when the economy is nearer capacity or when investors demand higher yields to absorb additional government debt issuance. Higher interest rates can reduce private sector borrowing for consumption and investment, a mechanism commonly described as crowding out. In exam language, this is often framed as government borrowing reducing or displacing private sector spending, especially private investment, because it becomes more expensive to finance projects and consumer credit. The option wording says eliminating, which is stronger than the standard phrasing, but among the choices it most closely reflects the crowding-out effect. The other options are inconsistent with borrowing-funded fiscal expansion: it would not typically lower interest rates, it does not mechanically reduce the money supply, and increasing banks' reserves is more directly associated with expansionary monetary policy operations rather than fiscal borrowing.

by Jessica at May 28, 2026, 10:35 AM

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Here are all the actual test exam dumps for IT exams. Most people prepare for the actual exams with our test dumps to pass their exams. So it's critical to choose and actual test pdf to succeed.

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