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8 February, 19:24

Explain the "Crowding out" effect and state how this effect can be avoided.

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  1. 8 February, 19:36
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    The Crowding Out Effect: A condition in which hiked up interest rates contribute to a decrease in private investment expenditure such that it hinders the initial increase of total investment spending is called crowding out effect. This can be avoided by reducing the involvement of the government in the functioning of the free market. Moreover, this effect can also be avoided by eliminating the fluctuations in interest rates that matter to the market such as that on loans.
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