Economics Crowding Out Questions
Crowding out refers to the phenomenon where government grants or subsidies to certain sectors or industries lead to a decrease in private sector investment or spending. When the government provides grants to specific sectors, it often requires funding, which can be obtained through borrowing or increasing taxes. This increased government spending can lead to higher interest rates or reduced availability of funds for private investment. As a result, private businesses may face higher borrowing costs or limited access to capital, which can discourage them from investing or expanding their operations. In this way, government grants can crowd out private sector investment and hinder economic growth.