The crowding out effect is often associated with
A)a temporary increase in taxes.
B)an increase in the interest rate caused by government borrowing.
C)the reinforcing impact of state and local tax changes on federal tax changes.
D)the impact of a tax rate increase when the aggregate supply function is horizontal.

Question

Quizplus · Accepted Answer

The crowding out effect refers to the decrease in private sector investment that occurs when government borrowing increases the interest rate, making it more expensive for individuals and businesses to borrow money. This can occur when the government increases its deficit spending, which leads to greater demand for loans and an increase in interest rates.

The Crowding Out Effect Is Often Associated with