The crowding-out effect refers to:

Question

Quizplus · Accepted Answer

The crowding-out effect occurs when government borrowing reduces the amount of available funds for private borrowing, leading to an increase in interest rates and a decrease in private investment. This happens because when the government borrows a large amount of money, it competes with private borrowers for the available funds, driving up interest rates and making it more difficult for private enterprises to borrow money. Therefore, option B is the correct answer as it accurately defines the crowding-out effect.

The Crowding-Out Effect Refers To