Crowding out occurs when debt-financed government spending decreases private investment spending by

Question

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When the government borrows money through issuing bonds, it increases demand for loanable funds, which in turn raises interest rates. This makes it more expensive for private investors to borrow money for their own investments, leading to decreased private investment spending. This is known as crowding out.

Crowding Out Occurs When Debt-Financed Government Spending Decreases Private Investment