Which of the following is an example of crowding out?
A)An increase in government spending increases interest rates, causing investment to fall.
B)A decrease in private savings increases interest rates, causing investment to fall.
C)A decrease in the money supply increases interest rates, causing investment to fall.
D)An increase in taxes increases interest rates, causing investment to fall.

Question

Quizplus · Accepted Answer

Crowding out occurs when increased government spending leads to higher interest rates, which in turn reduces investment spending by the private sector.

Which of the Following Is an Example of Crowding Out