The crowding out effect refers to
A) the presence of the Ricardo-Barro effect.
B) government investment crowding out private investment.
C) how a cyclical budget deficit changes over the business cycle.
D) the wealth effectʹs impact on the aggregate demand curve.

Question

Quizplus · Accepted Answer

The crowding out effect refers to government investment crowding out private investment. When the government increases its spending, it typically borrows money by issuing bonds, which can increase the demand for loans and raise interest rates. This can make it more expensive for businesses and individuals to borrow money for investment, reducing private investment and potentially leading to a decrease in economic growth.

The Crowding Out Effect Refers to