The crowding-out effect occurs when:
A) a. foreign investors crowd out U.S. investors in the market for loanable funds.
B) a. the federal government's demand for loanable funds due to a higher budget deficit crowds out the private demand in the market for loanable funds.
C) a. institutional investors crowd out individual investors in the market for loanable funds.
D) a. firms and municipal governments crowd out households in the market for loanable funds.

Question

Quizplus · Accepted Answer

The crowding-out effect occurs when the government's increased demand for loanable funds due to a higher budget deficit reduces or "crowds out" private investment in the market for loanable funds. Foreign or institutional investors or firms/municipal governments crowding out other investors would not be considered the classic crowding-out effect.

The Crowding-Out Effect Occurs When