The idea the government spending causes a reduction in private investment is called ?
Correct answer: C. crowding-out
- A. fiscal drag
- B. investment blight
- C. crowding-out
- D. the Thatcher effects
Explanation
Crowding out occurs when government borrowing or spending raises interest rates or absorbs available funds, causing private investment to fall. Fiscal drag instead refers to the dampening effect of rising taxes on aggregate demand.
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