Crowding out of private expenditure occurs when

Question

Quizplus · Accepted Answer

Crowding out of private expenditure occurs when the government increases its spending, which in turn increases interest rates, leading to a decrease in private investment and consumption. This is because the increased demand for borrowing from the government reduces the supply of loanable funds available for the private sector, resulting in higher interest rates, and thus reducing private investment and consumption.

Crowding Out of Private Expenditure Occurs When