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

Question

Quizplus · Accepted Answer

Crowding out refers to the decrease in private sector activity that occurs when government spending increases and takes up a larger share of the economy. In particular, increased government spending often leads to higher demand for financing, which results in higher interest rates. Higher interest rates reduce private investment as individuals and businesses are less likely to borrow money and make investments. Therefore, choice B - "leads to higher interest rates which reduces private investments" - is the best answer.

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