Crowding out results in a(n):

Question

Quizplus · Accepted Answer

Crowding out refers to a reduction in private investment spending caused by an increase in government borrowing, which causes interest rates to rise. Higher interest rates make borrowing more expensive for businesses, reducing their incentive to invest in physical capital. Therefore, crowding out results in a decrease in private investment spending, as stated in option A. Option B is incorrect because crowding out does not necessarily lead to an increase in physical capital accumulation or economic growth. Option C is incorrect because crowding out actually reduces private investment spending, so it does not result in an increase. Option D is also incorrect because crowding out does not affect consumption spending directly; it primarily impacts private investment.

Crowding Out Results in A(n)