Crowding out occurs because the government increases the demand for loanable funds, drives up interest rates, and I. stops private savers from saving. II. causes investment to fall. III. causes consumption to fall.

Question

Quizplus · Accepted Answer

Crowding out occurs when increased government borrowing increases demand for loanable funds, causing interest rates to rise. This decrease in investment spending reduces the resources available to the private sector, leading to a reduction in consumption spending. Therefore, options II and III are correct, while option I is not true since crowding out does not stop private savers from saving, but rather discourages investment spending.

Crowding Out Occurs Because the Government Increases the Demand for Loanable