The reduction in private borrowing caused by an increase in government borrowing is called:
A) the crowding out effect.
B) surplus investment.
C) the dissaving effect.
D) the savings effect.

Question

Quizplus · Accepted Answer

The reduction in private borrowing caused by an increase in government borrowing is known as the crowding out effect. This occurs when the government sells bonds to finance its spending, which increases the demand for credit and drives up interest rates. As interest rates rise, individuals and businesses are discouraged from borrowing, which reduces their borrowing capacity and may result in a decline in overall investment and economic growth.

The Reduction in Private Borrowing Caused by an Increase in Government