A. The increase in private investment that occurs when government borrowing decreases
B. The increase in government spending that occurs when private investment decreases
C. The decrease in government spending that occurs when private investment increases
D. The decrease in private investment that occurs when government borrowing increases
Explanation
The term "crowding out" refers to the decrease in private investment that occurs when government borrowing increases.
When the government borrows more money from the financial markets to finance its spending, it increases the demand for loanable funds, leading to higher interest rates.
Higher interest rates make borrowing more expensive for businesses and individuals, reducing their willingness to invest and borrow for private investment projects.
This phenomenon is known as "crowding out" because government borrowing "crowds out" private investment by competing for available funds in the financial markets.
