What leads directly to the crowding-out effect?

a big federal budget deficit

increased government spending

a federal budget surplus

cuts in federal spending

The answer is where there is increased government spending.

Explanation:

The crowding out effect is a situation where increased interest rates lead to a reduction in private investment spending. in essence, the personal consumption of goods and services and investments by businesses drops because there is an increase in government spending and deficit financing. this mops out available financial resources and raises interest rates.

Once there are higher interest rates, the cost of funds to be invested increases and affects availability to debt financing tools. this leads to lesser investment and crowds out the increase in total investment spending.