Crowding out refers to the government's increased demand for credit,which
A)displaces some private sector consumption by decreasing the price level
B)displaces some private sector borrowing by decreasing the interest rate
C)displaces some private sector borrowing by increasing the interest rate
D)hires labor away from the private sector
E)means longer lines at government agencies

Question

Quizplus · Accepted Answer

Crowding out occurs when the government's demand for credit leads to an increase in interest rates, which in turn decreases the supply of credit available to the private sector. This means that some private sector borrowing is displaced by the government's borrowing, which can have negative effects on the economy. Option C correctly states that crowding out displaces some private sector borrowing by increasing the interest rate.

Crowding Out Refers to the Government's Increased Demand for Credit,which