The term "crowding out" refers to the phenomenon that occurs when increased government Jspending

Question

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Crowding out refers to the decrease in private sector spending that occurs when government spending increases. Specifically, in this context, increased government spending leads to higher demand for loanable funds, which pushes up interest rates. Higher interest rates make borrowing more expensive for businesses and individuals, thus reducing their incentive to invest or spend. This results in a decrease in private sector spending and investment, which can offset the initial stimulative effect of increased government spending. Option A is incorrect because crowding out does not necessarily lead to a rise in the price level. Option C is incorrect because higher bond prices indicate a higher demand for Treasury bonds, which is the opposite effect of crowding out. Option D may occur as a policy response to address the budget deficit, but it is not a direct consequence of crowding out.

The Term "Crowding Out" Refers to the Phenomenon That Occurs