The term ʺcrowding outʺ relates to the decrease in
A) consumption expenditure from an increase in investment.
B) private investment from a government budget deficit.
C) the real interest rate from a government budget deficit.
D) saving from an increase in disposable income.

Question

Quizplus · Accepted Answer

Crowding out refers to the decrease in private investment caused by a increase in government borrowing or spending. When the government runs a budget deficit, they have to borrow money, which leads to an increase in interest rates. Higher interest rates make it more expensive for private firms to borrow money, which can lead to a decrease in their investment and spending, hence "crowding out" private investment.

The Term ʺCrowding Outʺ Relates to the Decrease in