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2026 · Question 94 · Public Finance
Which one of the following best describes the ‘Crowding Out Effect’ in the context of fiscal policy ?
Choose your answer(a)A situation where private investment increases due to increased Government spending(b)A situation where Government borrowing leads to higher interest rates, which reduces private investment(c)A situation where an increase in taxes leads to increased private sector investment(d)A situation where Government spending has no impact on aggregate demand
Source: UPSC, Civil Services (Preliminary), General Studies Paper I (opens in a new tab)