Economics Crowding Out Questions
The effects of crowding out on interest rates in developing 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 funds in the financial 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 economic growth in developing economies.