Crowding out is the:
A)increase in business investment as opposed to household investment.
B)reduction in the budget deficit.
C)reduction in private investment due to a rise in government spending.
D)increase in inventories due to a recession.

Question

Quizplus · Accepted Answer

Crowding out refers to the phenomenon where an increase in government spending leads to a decrease in private investment. This happens because when the government spends more, it competes with private borrowers for funds in the loanable funds market, raising interest rates and making it more expensive for businesses to borrow and invest. As a result, private investment decreases, leading to crowding out.

Crowding Out Is The