Crowding out occurs when increased government spending reduces the level of private spending in an economy.

Question

Quizplus · Accepted Answer

Crowding out occurs because government spending increases demand for goods and services, which in turn drives up prices. This increase in prices reduces the purchasing power of consumers and businesses, leading them to reduce their own spending. Therefore, an increase in government spending results in a decrease in private spending.

Crowding Out Occurs When Increased Government Spending Reduces the Level