What change in monetary policy would eventually cause overborrowing and overinvestment?
The answer to the question above is INCREASE IN MONEY SUPPLY. This is change in the monetary policy that would result in over investment and over borrowing. Actually, the money supply is being regulated by the FED. There is an increase money supply when the government purchases bonds such as government securities. As a result, there would also be an increased availability of funds for private banks in which they can use to lend-out or loans. This is where over borrowing and over investment comes in.