The "crowding out" effect states that government spending pushes up interest rates and reduces private investment spending.

Question

Quizplus · Accepted Answer

The "crowding out" effect occurs when the government spends more, which increases the demand for credit, leading to an increase in interest rates. When interest rates rise, the borrowing costs for individuals and companies increase, thus reducing their ability to invest in projects, expansion, or purchases.

The "Crowding Out" Effect States That Government Spending Pushes Up