Crowding out might occur when:

Question

a. governments run budget deficits.
b. households borrow money to buy houses.
c. firms borrow money to fund projects.
d. imports are greater than exports.

Answer 1

Crowding out might occur when:

a. governments run budget deficits.

When a government runs a budget deficit, it often borrows money to finance its spending. This increased demand for loanable funds can lead to higher interest rates, which may discourage private investment as businesses and individuals may find it more expensive to borrow. This phenomenon is known as crowding out.

Options b, c, and d do not directly relate to the concept of crowding out in the same way.