The crowding-out effect states that as the government borrows to pay for a deficit,it drives up the interest rates,which crowds out private spending and investment.

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The crowding-out effect is a well-established economic concept that occurs when government borrowing leads to higher interest rates, making it more difficult for individuals and businesses to borrow and slowing down private spending and investment. This can have negative effects on economic growth and development, and is a key consideration in government fiscal policies.

The Crowding-Out Effect States That as the Government Borrows to Pay