The crowding-out effect will probably occur when
A)the government budget is in surplus.
B)the government follows an easy fiscal policy.
C)the government follows a tight fiscal policy.
D)the government crowds out the economy by lowering the interest rate.

Question

Quizplus · Accepted Answer

The crowding-out effect occurs when increased government spending leads to higher interest rates, which reduces private investment. This is more likely with an easy fiscal policy, where the government increases spending or cuts taxes, potentially leading to higher interest rates.

The Crowding-Out Effect Will Probably Occur When