Crowding out reduces:
A)the real interest rate.
B)private investment.
C)corporate taxes.
D)the government budget deficit.

Question

Quizplus · Accepted Answer

Crowding out occurs when increased government spending leads to a decrease in private investment. This happens because government borrowing increases the demand for loans, which increases the interest rate. As a result, private investors are discouraged from borrowing, since the cost of borrowing has gone up. This ultimately reduces private investment, which can have negative effects on economic growth in the long-run. Crowding out does not necessarily reduce the real interest rate, corporate taxes, or the government budget deficit.

Crowding Out Reduces