Crowding Out Effect

CFA Level I Economics
#1

The crowding-out effect is most likely associated with:

A. increasing government borrowing

B. decreasing government borrowing

C. falling real interest rates

What is the correct answer? I choose B but the answer was incorrect. But the explanation of the answer point towards B. I’m confused.

#2

Crowding out occurs when government spending displaces private spending.

I would imaging that this occurs primarily when government borrowing _ increases _: they’re borrowing money to spend it.

#3

Thanks magician

#4

You’re welcome.