Economics Crowding Out Questions
The effects of crowding out on interest rates in closed economies are generally an increase in interest rates. This occurs because when the government increases its borrowing to finance its spending, it competes with private borrowers for the available funds in the market. This increased demand for funds leads to a decrease in the supply of funds available for private investment, causing interest rates to rise. As a result, higher interest rates can discourage private investment and borrowing, potentially slowing down economic growth.