Economics · Fiscal Policy
What is the 'crowding-out effect' in the context of fiscal policy?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Government borrowing has no impact on private sector credit and investment.
- 2Government spending decreases interest rates, encouraging private investment.
- 3Increased government borrowing raises interest rates, reducing private sector investment.✓
- 4Government spending leads to increased private sector investment.
Correct answer
Increased government borrowing raises interest rates, reducing private sector investment.
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