The increase in private investment spending induced by the increase in

The increase in private investment spending induced by the increase in Government spending is known as

[amp_mcq option1=”Crowding in” option2=”Deficit financing” option3=”Crowding out” option4=”Pumping out” correct=”option1″]

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UPSC CDS-1 – 2021

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Crowding in refers to the phenomenon where increased government spending stimulates aggregate demand, leading to higher economic activity and improved business confidence. This positive economic environment can induce firms to increase their private investment spending.

– Crowding in occurs when fiscal expansion leads to an increase, rather than a decrease, in private investment.
– This typically happens when the economy has significant unused capacity or when government spending specifically targets infrastructure or research that complements private sector activities.

Crowding out is the opposite phenomenon, where increased government borrowing to finance spending raises interest rates, making it more expensive for private firms to borrow and invest, thus reducing private investment. Deficit financing is the method of funding government spending when revenue is insufficient, often through borrowing. Pumping out is not a standard economic term.

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