Crowding out occurs when the government
A)Increases taxes,thus causing a decrease in consumption.
B)Issues debt,thus making it more difficult for the private sector to issue debt.
C)Prints money,which displaces currency.
D)Crowds in.

Question

Quizplus · Accepted Answer

Crowding out occurs when the government issues debt, which raises interest rates and makes it more expensive for the private sector to borrow money. This can lead to a decrease in private investment and consumption, as the private sector is crowded out by government borrowing. Option A is incorrect, as increasing taxes may lead to a decrease in consumption, but it is not necessarily an example of crowding out. Option C is incorrect, as printing money can lead to inflation and a decrease in the value of currency, but it is not necessarily an example of crowding out. Option D is incorrect, as crowding in refers to a situation where government spending leads to an increase in private sector activity.

Crowding Out Occurs When the Government