Crowding-out occurs when

Question

Quizplus · Accepted Answer

Crowding-out refers to the situation where increased government spending leads to a decrease in private investment. This occurs when the government increases its borrowing to finance its spending, and this in turn leads to an increase in interest rates. The higher interest rates make it more expensive for private businesses to borrow money, thus reducing their investment. The option B describes this situation where the government engages in bond sales to finance its budget deficit, which leads to crowding-out.

Crowding-Out Occurs When