The tendency for expansionary fiscal policy to cause a reduction in planned investment spending by the private sector is called

Question

Quizplus · Accepted Answer

The crowding-out effect occurs when government spending increases and interest rates rise, resulting in a decrease in private investment spending. This happens because the government is borrowing more, increasing the demand for loanable funds, thereby increasing interest rates, making it costlier for firms to borrow for investment. Thus, private investment spending is crowded out.

The Tendency for Expansionary Fiscal Policy to Cause a Reduction