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

Question

Quizplus · Accepted Answer

The crowding-out effect occurs when increased government spending, financed by borrowing, raises interest rates, which in turn reduces investment spending by businesses and individuals, leading to a decrease in private sector investment. This happens because the demand for loanable funds increases, leading to higher interest rates, which makes investment more expensive for firms, leading them to reduce investment spending.

The Tendency for Expansionary Fiscal Policy to Cause a Reduction