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 borrowers, including small businesses. When the government borrows more money to finance its spending, it increases the demand for loanable funds, which in turn drives up interest rates. As interest rates rise, it becomes more expensive for small businesses to borrow money from banks or other lenders. This reduced availability of credit can hinder the growth and expansion of small businesses, as they may struggle to access the necessary funds for investment, hiring, or day-to-day operations.