Crowding Out occurs when ____

CA Foundation · Business Economics · MTP · September 2025
Crowding Out occurs when ____
(A) A. A decrease in the money supply raises the rate of interest which crowds out interest sensitive private sector spending
(B) B. An increase in taxes for the private sector reduces private sector disposable income and spending
(C) C. A reduction in income taxes results in a higher interest rate which crowds out interest sensitive private sector spending
(D) D. None of these

Suggested Answer and Working Notes:

Correct Answer: Option (C)

C. A reduction in income taxes results in a higher interest rate which crowds out interest sensitive private sector spending

Topics: Determination of National Income

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