The concept of 'Crowding Out' can occur through which of the following channels?
A. Only through increased private consumption
B. Only through increased net exports
C. Only through lower interest rates
D. Higher interest rates reducing private investment and appreciation of the currency reducing net exports
Answer: Option D
Solution (By JKSSB Mock Tests)
Government borrowing can raise interest rates (financial crowding out) and, in an open economy, appreciate the currency, thereby reducing net exports (international crowding out).
No comments yet. Be the first to start the discussion!