16 Nov 2021
Problem 24
Page 759
Section: CRITICAL THINKING QUESTIONS
Chapter 31: The Impacts of Government Borrowing
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16 Nov 2021
Introduction
Crowding out effect is a phenomenon when higher interest rates reduces spending in private investment, in other words it lessens the increase in total investment spending. It usually happens when government with the objective of fuelling up the economy increases government spending which in turn leads to increase in interest rates which finally affects the decision of spending in private investment. There are instances when a higher enormity of crowding out may deaccelerate the economic growth.
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