Crowding out occurs when the federal government:

Question

Quizplus · Accepted Answer

Crowding out refers to the situation where increased government borrowing to finance budget deficits leads to an increase in interest rates, which leads to a decrease in private investment spending. This occurs because the increased demand for loanable funds from the government increases the cost of borrowing for everyone else, making it more expensive for individuals and businesses to take out loans for investment purposes. Selling bonds to finance a deficit is a form of government borrowing that can lead to crowding out.

Crowding Out Occurs When the Federal Government