Crowding out:
A) occurs when the Fed monetizes the debt.
B) occurs when the discount rate is lowered.
C) results from an increase in interest rates due to federal government borrowing.
D) becomes more of a problem for households and businesses when the Fed follows an easy money policy.

Question

Quizplus · Accepted Answer

Crowding out happens when government borrowing leads to higher interest rates, which can deter private investment. This is because as the government borrows more, it can drive up the demand for loanable funds, leading to higher interest rates.

Crowding Out