Crowding out will lead to a decrease in supply of loanable funds, a decrease in real interest rates, and subsequently a decrease in spending by households and firms.

Question

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Crowding out is a phenomenon where increased government borrowing leads to a decrease in the supply of loanable funds available for private investment. As a result, real interest rates increase, and private investment decreases, which reduces economic growth. Crowding out does not lead to a decrease in spending by households and firms; instead, it leads to a decrease in private investment.

Crowding Out Will Lead to a Decrease in Supply of Loanable