Crowding out occurs when:
A) households change their consumption patterns.
B)private investment spending is displaced by government spending when the economy is at full employment and the central bank reacts by revising its interest rate setting.
C) households save less as interest rates rise.
D) the economy is at less than full employment and the central bank reacts by revising its interest rate setting

Question

Quizplus · Accepted Answer

Crowding out refers to a situation where increased government spending leads to a reduction in private sector investment. This typically happens when the economy is at full employment, and the government's increased demand for funds drives up interest rates, making borrowing more expensive for the private sector.

Crowding Out Occurs When