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

Question

Mayank Singh · Answer

A situation where private investment increases due to increased Government spending

Mayank Singh · Answer

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

Mayank Singh · Answer

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

Mayank Singh · Answer

A situation where Government spending has no impact on aggregate demand