The 'crowding out' of private investment is associated with:
A) a reduction in profitable investment opportunities due to a recession.
B) increased competition from foreign investors in Australian markets.
C) higher interest rates resulting from a declining rate of saving.
D) higher interest rates resulting from increased borrowing by the federal government.

Question

Quizplus · Accepted Answer

Crowding out of private investment occurs when there is an increase in government borrowing, which causes interest rates to rise. The higher interest rates make borrowing more expensive for the private sector, reducing their ability or willingness to invest in new projects. Thus, option D, which refers to "higher interest rates resulting from increased borrowing by the federal government," is the correct choice. Options A, B, and C do not accurately describe the phenomenon of crowding out.

The 'Crowding Out' of Private Investment Is Associated With