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The "crowding out effect" refers to:

A. the inability of the government to borrow as much as it needs because of investment spending.
B. higher interest rates reducing or crowding out consumer borrowing.
C. reductions in the Federal debt.
D. the loss of funds for private investments due to government borrowing.

Please select the best answer from the choices provided.



Answer :

GinnyAnswer

Final answer:

The crowding out effect in economics relates to decreased private-sector investment due to government deficit spending and increased demand for loanable funds causing higher interest rates.


Explanation:

The "crowding out effect" refers to the reduction in private-sector investment that results from government deficit spending. The government's borrowing increases the demand for loanable funds, leading to higher interest rates, which in turn decreases private-sector borrowing for investments.


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