Crowding out refers to the government's increased demand for credit,which:
A)displaces some private sector consumption by decreasing the price level.
B)displaces some private sector borrowing by decreasing the interest rate.
C)displaces some private sector borrowing by increasing the interest rate.
D)hires labor away from the private sector.
E)displaces some import purchases by the private sector.

Question

​Crowding out refers to the government's increased demand for credit,which:
A)displaces some private sector consumption by decreasing the price level.
B)displaces some private sector borrowing by decreasing the interest rate.
C)displaces some private sector borrowing by increasing the interest rate.
D)hires labor away from the private sector.
E)displaces some import purchases by the private sector.

Quizplus · Accepted Answer

Crowding out occurs when the government's increased demand for credit leads to a decrease in the supply of credit available for private sector borrowers. This decrease in supply leads to an increase in interest rates, which in turn discourages private sector borrowing and investment. Therefore, the correct choice is C, which states that crowding out displaces some private sector borrowing by increasing the interest rate.

​Crowding Out Refers to the Government's Increased Demand for Credit,which

Crowding Out Refers to the Government's Increased Demand for Credit,which