The reduction in private borrowing that is caused by an increase in government borrowing is called:
A) the crowding out effect.
B) surplus investment.
C) the dissaving effect.
D) the savings effect.

Question

Quizplus · Accepted Answer

The reduction in private borrowing caused by an increase in government borrowing is called the crowding out effect. This is because as the government borrows more, it increases the demand for credit, which raises interest rates, making it more expensive for individuals and businesses to borrow, and thus reducing their borrowing.

The Reduction in Private Borrowing That Is Caused by an Increase