Economics Crowding Out Questions
Crowding out refers to the phenomenon where increased government spending on public investment projects leads to a decrease in private sector investment. This occurs when the government borrows funds from the financial market to finance its projects, which increases the demand for loanable funds and drives up interest rates. As a result, private businesses and individuals find it more expensive to borrow money for their own investments, leading to a decrease in private investment. In this context, crowding out occurs when government spending "crowds out" or displaces private sector investment, potentially reducing overall economic growth and efficiency.