Economics Crowding Out Questions
Crowding out refers to the phenomenon where increased government borrowing leads to a decrease in private sector borrowing. This occurs when the government increases its spending and borrows more money, which increases the demand for loanable funds. As a result, interest rates rise, making it more expensive for businesses and individuals to borrow money. This decrease in private sector borrowing reduces the overall money supply in the economy. Therefore, crowding out leads to a decrease in the money supply.