Crowding out occurs when
A)increased taxes force higher levels of national saving.
B)deficit spending by the government forces private investment spending to contract.
C)local businesses cannot get government contracts because of the higher bids of large corporations.
D)foreign investors are willing to pay higher prices for U.S.bonds than American citizens will pay.

Question

Quizplus · Accepted Answer

Crowding out occurs when the government increases deficit spending, which increases demand for loanable funds and drives up interest rates, leading to a decrease in private investment spending. This occurs because the government is borrowing more, leaving less funds available for private investment.

Crowding Out Occurs When