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

Question

Accepted Answer

The Crowding Out Effect occurs when government deficit spending leads to heavy borrowing from financial markets, increasing demand for loanable funds, driving up interest rates. Higher rates make borrowing more expensive for private businesses, reducing private sector investment — the private sector is "crowded out" of the credit market. Option A describes the "Crowding In Effect."