The so-called crowding-out effect refers to government spending crowding out private investment
spending.

Question

Quizplus · Accepted Answer

The crowding-out effect occurs when increased government spending leads to a decrease in private investment spending. This happens because government borrowing to fund its spending may lead to an increase in interest rates, making it more expensive for businesses to borrow money for investment. As a result, they may reduce their investment spending, leading to a crowding-out of private investment.

The So-Called Crowding-Out Effect Refers to Government Spending Crowding Out