Crowding out occurs when:

A Private spending increases

B Government borrowing raises interest rates, which reduces private investment

C Exports increase

D Taxes decrease

✓ Correct Answer: Option B

Crowding out: government borrows to fund deficit spending → loanable funds demand increases → interest rates rise → private investment decreases, partially offsetting fiscal stimulus.

💡 Why is B) the correct answer?

The correct answer to the question "Crowding out occurs when:" is Option B: Government borrowing raises interest rates, which reduces private investment.

The other options — A) Private spending increases, C) Exports increase, D) Taxes decrease — are incorrect for this Pre-MBA Exam Prep question. As explained above: Crowding out: government borrows to fund deficit spending → loanable funds demand increases → interest rates rise → private investment decreases, partially offsetting fiscal stimulus.

📚 About This Pre-MBA Exam Prep Practice Question

This 3-level Pre-MBA Exam Prep question from the Economics topic is part of BrainForge Quiz's free exam preparation library. Each question includes the correct answer and a detailed explanation to help you understand the underlying concept, not just memorize the answer.

How to use this page: Read the question above, consider all four options (A through D), then check the highlighted correct answer and explanation. For active timed practice, start a free Pre-MBA Exam Prep practice test or use flashcards for spaced repetition review.

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Crowding out occurs when:

✓ Correct Answer: Option B

📚 About This Pre-MBA Exam Prep Practice Question

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