The crowding out effect of government borrowing refers to a decrease in I. private consumption. II. private savings. III. investment.

Question

Quizplus · Accepted Answer

The crowding out effect of government borrowing leads to an increase in interest rates, which in turn leads to a decrease in investment. Private savings may also decrease as individuals may choose to spend more on consumption instead of saving due to the higher interest rates. However, there is no direct impact on private consumption, so choice (I) is not correct. Therefore, (B) holds true as it correctly identifies the decrease in private savings and investment.

The Crowding Out Effect of Government Borrowing Refers to a Decrease