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Miscellaneous·Easy

‘Crowding out’ is a term that is often seen in the news. Which of the following results in ‘crowding out’ of private investments?

‘Crowding out’ is a term that is often seen in the news. Which of the following results in ‘crowding out’ of private investments?

Options

  1. a.

    Decreased government spending due to demand slump in the economy.

  2. b.

    Increased government spending mainly funded by borrowings.

    Correct answer
  3. c.

    Decreased private investment due to demand slump in the economy.

  4. d.

    Increased private investment but demand slump in the economy.

Explanation

• Crowding out of private investments is said to occur when the high government expenditure is funded mainly by borrowings, squeezing the availability of credit, thereby crowding out private investments.

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