The "crowding out" effect suggests that:
A)government spending is increasing at the expense of private investment.
B)imports are replacing domestic production.
C)private investment is increasing at the expense of government spending.
D)consumption is increasing at the expense of investment.

Question

Quizplus · Accepted Answer

The "crowding out" effect refers to the idea that government spending can reduce private investment, as the government relies on borrowing funds from the same pool that private investors also draw from, raising interest rates in the process. This can lead to less private investment, since borrowing is more expensive or less available, and, in turn, lower economic growth. Therefore, the correct choice is A.

The "Crowding Out" Effect Suggests That