In an open economy, crowding out occurs when an increase in government spending results in:

Question

Quizplus · Accepted Answer

In an open economy, an increase in government spending may result in an increase in domestic interest rates, which can lead to an increase in capital inflows and a stronger currency. This in turn can decrease net exports as exports become relatively more expensive and imports become relatively cheaper, leading to crowding out of exports.

In an Open Economy, Crowding Out Occurs When an Increase