What does the term "crowding out" refer to?
Choose 1 answer:
(A) When private sector borrowing increases, government borrowing decreases
(B) When one private industry within an economy borrows more, other sectors of the economy borrow less
(c) When there is a decrease in tax revenue, revenue from automatic stabilizers decrease
(D) When government borrowing increases, private sector investment spending decreases
(E) When there is an increase in unemployment, spending on automatic stabilizers increases

Question

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ To understand the term "crowding out" in the context of economics, we need to consider the relationship between government borrowing and private sector investment. ‖ ‖ step 2 ⋮ The term "crowding out" refers to a situation where increased government borrowing leads to higher interest rates, which in turn makes it more expensive for the private sector to borrow and invest. This can result in a decrease in private sector investment spending. ‖ ‖ step 3 ⋮ Reviewing the provided answer choices from the OCR model's interpretation of the image, we need to identify which option correctly defines "crowding out." ‖ ‖ step 4 ⋮ Option (D) states: "When government borrowing increases, private sector investment spending decreases," which aligns with the economic concept of "crowding out." ‖ ∻Answer∻ ***D*** ∻Key Concept∻ ⚹Crowding out effect⚹ ∻Explanation∻ ⚹The crowding out effect occurs when increased government borrowing leads to higher interest rates, which discourages private sector borrowing and investment.⚹◊What is the probability that a randomly selected person can correctly answer the question about the meaning of "crowding out" based on the provided options?⍭ Generate me a similar question◊

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