Which of the following is an effect of crowding out?
A) A reduction in the size of the government de?cit.
B) An increase in private investment.
C) A fall in the cost of private debt.
D) A reduction in the size of the multiplier.

Question

Quizplus · Accepted Answer

Crowding out occurs when increased government spending leads to higher interest rates, which reduces investment spending by the private sector. This can lead to a reduction in the size of the multiplier, as government spending displaces private sector spending.

Which of the Following Is an Effect of Crowding Out