Definition of crowding-out effect
the reduction of private investment due to increased government borrowing
Examples of crowding-out effect in the following topics:
- The tax multiplier is the magnification effect of a change in taxes on aggregate demand.
- The decrease in taxes has a similar effect on income and consumption as an increase in government spending.
- The money that is saved does not contribute to the multiplier effect .
- The multiplier effect of a tax cut can be affected by the size of the tax cut, the marginal propensity to consume, as well as the crowding out effect.
- The crowding out effect occurs when higher income leads to an increased demand for money, causing interest rates to rise.