The idea that a government budget deficit decreases investment is called

Question

Quizplus · Accepted Answer

The crowding-out effect is the idea that when the government runs a budget deficit, it has to borrow more money to finance its spending, which increases interest rates and decreases investment by the private sector. This happens because borrowing by the government raises the demand for loanable funds, which puts upward pressure on interest rates. As a result, private investors are less willing to borrow and invest in new capital projects, because the cost of borrowing has gone up. This reduces the supply of investment funds that are available to businesses, which can limit economic growth over time.

The Idea That a Government Budget Deficit Decreases Investment Is