204k views
1 vote
Crowding out occurs when investment declines because of a budget?

1) Deficit
2) Surplus
3) Balance
4) None of the above

User Hylke
by
8.3k points

1 Answer

1 vote

Final answer:

Crowding out occurs when government borrowing reduces the funds available for private investment in physical capital.

Step-by-step explanation:

Crowding out occurs when government borrowing soaks up available financial capital and leaves less for private investment in physical capital. This happens when the government changes from running a budget surplus to running a budget deficit. A larger budget deficit increases the demand for financial capital and reduces the funds available for private investment.

User Jnbdz
by
8.2k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.