Which one of the following best describes the 'Crowding Out Effect' in the context of fiscal policy ?

Question

Accepted Answer

(B) A situation where Government borrowing leads to higher interest rates, which reduces private investment

Answer

(A) A situation where private investment increases due to increased Government spending

Answer

(C) A situation where an increase in taxes leads to increased private sector investment

Answer

(D) A situation where Government spending has no impact on aggregate demand