Economics Crowding Out Questions
Crowding out refers to the phenomenon where increased government borrowing leads to a decrease in the availability of credit for private investment. When the government borrows more money to finance its spending, it increases the demand for credit in the financial market. This increased demand for credit leads to higher interest rates, making it more expensive for private businesses and individuals to borrow money for investment purposes. As a result, the availability of credit for private investment decreases, as it becomes less attractive and more costly for private borrowers to access funds.