Crowding Out
Ava Garcia
8 min read
Study Guide Overview
This study guide covers the concept of crowding out in AP Macroeconomics. It explains how increased government borrowing can lead to higher interest rates, reducing private investment and lessening the impact of expansionary fiscal policy. The guide uses graphs and examples to illustrate the process, discusses long-run impacts on economic growth and infrastructure, and provides practice questions with an answer key.
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Question 1 of 9
What is the core idea behind the crowding-out effect? 🤔
Increased private investment leading to lower interest rates
Government borrowing increases interest rates, which reduces private investment
Decreased government spending increasing private investment
Lower taxes leading to higher consumer spending