Crowding out is most likely to occur when the federal government:

Question

Quizplus · Accepted Answer

Crowding out occurs when the government borrows money to finance its deficit spending, which leads to an increase in interest rates and a decrease in private investment spending. This is because the increased government borrowing for deficit spending increases the demand for loanable funds, causing interest rates to rise. As interest rates rise, private investment spending decreases, which can reduce economic growth. Therefore, option D is the best choice because it describes the situation in which crowding out is most likely to occur.

Crowding Out Is Most Likely to Occur When the Federal