Crowding out can best be defined as
A)private investment increases growth rates and decreases deficits.
B)restrictive monetary policy raises interest rates and decreases investment.
C)government deficits increase interest rates and decrease investment.
D)consumption spending increases interest rates and decreases investment.

Question

Quizplus · Accepted Answer

Crowding out occurs when government deficits lead to an increase in interest rates, which then leads to a decrease in private investment. This happens because government borrowing increases demand for loanable funds and causes interest rates to rise, making it more expensive for private sector borrowers to borrow money. This reduces investment spending, which can have negative impacts on economic growth.

Crowding Out Can Best Be Defined as