{"id":85353,"date":"2025-06-01T03:14:02","date_gmt":"2025-06-01T03:14:02","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=85353"},"modified":"2025-06-01T03:14:02","modified_gmt":"2025-06-01T03:14:02","slug":"the-contraction-of-private-investment-spending-due-to-deficit-spending","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/the-contraction-of-private-investment-spending-due-to-deficit-spending\/","title":{"rendered":"The contraction of private investment spending due to deficit spending"},"content":{"rendered":"

The contraction of private investment spending due to deficit spending by the Government is called<\/p>\n

[amp_mcq option1=”crowding out” option2=”crowding in” option3=”pump priming” option4=”dumping” correct=”option1″]<\/p>\n

\n
\n
This question was previously asked in<\/div>\n
UPSC CDS-1 – 2023<\/div>\n<\/div>\n
Download PDF<\/a>Attempt Online<\/a><\/div>\n<\/div>\n
\nThe correct answer is A) crowding out. Crowding out is an economic phenomenon where increased government spending, financed through borrowing, leads to a decrease in private sector investment. This happens because increased government demand for loanable funds pushes up interest rates, making it more expensive for private businesses to borrow money for investment projects.
\n<\/section>\n
\n– Deficit spending by the government means the government is spending more than it collects in revenue, requiring it to borrow money.
\n– Increased government borrowing increases the demand for funds in the financial markets.
\n– Increased demand for funds, with a given supply, leads to higher interest rates.
\n– Higher interest rates increase the cost of borrowing for private firms and individuals.
\n– This higher cost discourages private investment spending (e.g., on new factories, equipment, or housing), hence ‘crowding out’ private investment.
\n<\/section>\n
\nCrowding in is the opposite effect, where government spending stimulates private investment. Pump priming refers to government spending to stimulate a depressed economy. Dumping is an international trade practice.
\n<\/section>\n","protected":false},"excerpt":{"rendered":"

The contraction of private investment spending due to deficit spending by the Government is called [amp_mcq option1=”crowding out” option2=”crowding in” option3=”pump priming” option4=”dumping” correct=”option1″] This question was previously asked in UPSC CDS-1 – 2023 Download PDFAttempt Online The correct answer is A) crowding out. Crowding out is an economic phenomenon where increased government spending, financed … <\/p>\n

Detailed SolutionThe contraction of private investment spending due to deficit spending<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1087],"tags":[1105,1120,1196],"class_list":["post-85353","post","type-post","status-publish","format-standard","hentry","category-upsc-cds-1","tag-1105","tag-economic-development","tag-fiscal-policy-revenue","no-featured-image-padding"],"yoast_head":"\nThe contraction of private investment spending due to deficit spending<\/title>\n<meta name=\"description\" content=\"The correct answer is A) crowding out. Crowding out is an economic phenomenon where increased government spending, financed through borrowing, leads to a decrease in private sector investment. This happens because increased government demand for loanable funds pushes up interest rates, making it more expensive for private businesses to borrow money for investment projects. - Deficit spending by the government means the government is spending more than it collects in revenue, requiring it to borrow money. - Increased government borrowing increases the demand for funds in the financial markets. - Increased demand for funds, with a given supply, leads to higher interest rates. - Higher interest rates increase the cost of borrowing for private firms and individuals. - This higher cost discourages private investment spending (e.g., on new factories, equipment, or housing), hence 'crowding out' private investment.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/the-contraction-of-private-investment-spending-due-to-deficit-spending\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The contraction of private investment spending due to deficit spending\" \/>\n<meta property=\"og:description\" content=\"The correct answer is A) crowding out. Crowding out is an economic phenomenon where increased government spending, financed through borrowing, leads to a decrease in private sector investment. This happens because increased government demand for loanable funds pushes up interest rates, making it more expensive for private businesses to borrow money for investment projects. - Deficit spending by the government means the government is spending more than it collects in revenue, requiring it to borrow money. - Increased government borrowing increases the demand for funds in the financial markets. - Increased demand for funds, with a given supply, leads to higher interest rates. - Higher interest rates increase the cost of borrowing for private firms and individuals. - This higher cost discourages private investment spending (e.g., on new factories, equipment, or housing), hence 'crowding out' private investment.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/exam.pscnotes.com\/mcq\/the-contraction-of-private-investment-spending-due-to-deficit-spending\/\" \/>\n<meta property=\"og:site_name\" content=\"MCQ and Quiz for Exams\" \/>\n<meta property=\"article:published_time\" content=\"2025-06-01T03:14:02+00:00\" \/>\n<meta name=\"author\" content=\"rawan239\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"rawan239\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"1 minute\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"The contraction of private investment spending due to deficit spending","description":"The correct answer is A) crowding out. Crowding out is an economic phenomenon where increased government spending, financed through borrowing, leads to a decrease in private sector investment. This happens because increased government demand for loanable funds pushes up interest rates, making it more expensive for private businesses to borrow money for investment projects. - Deficit spending by the government means the government is spending more than it collects in revenue, requiring it to borrow money. - Increased government borrowing increases the demand for funds in the financial markets. - Increased demand for funds, with a given supply, leads to higher interest rates. - Higher interest rates increase the cost of borrowing for private firms and individuals. - This higher cost discourages private investment spending (e.g., on new factories, equipment, or housing), hence 'crowding out' private investment.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/exam.pscnotes.com\/mcq\/the-contraction-of-private-investment-spending-due-to-deficit-spending\/","og_locale":"en_US","og_type":"article","og_title":"The contraction of private investment spending due to deficit spending","og_description":"The correct answer is A) crowding out. Crowding out is an economic phenomenon where increased government spending, financed through borrowing, leads to a decrease in private sector investment. This happens because increased government demand for loanable funds pushes up interest rates, making it more expensive for private businesses to borrow money for investment projects. - Deficit spending by the government means the government is spending more than it collects in revenue, requiring it to borrow money. - Increased government borrowing increases the demand for funds in the financial markets. - Increased demand for funds, with a given supply, leads to higher interest rates. - Higher interest rates increase the cost of borrowing for private firms and individuals. - This higher cost discourages private investment spending (e.g., on new factories, equipment, or housing), hence 'crowding out' private investment.","og_url":"https:\/\/exam.pscnotes.com\/mcq\/the-contraction-of-private-investment-spending-due-to-deficit-spending\/","og_site_name":"MCQ and Quiz for Exams","article_published_time":"2025-06-01T03:14:02+00:00","author":"rawan239","twitter_card":"summary_large_image","twitter_misc":{"Written by":"rawan239","Est. reading time":"1 minute"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/exam.pscnotes.com\/mcq\/the-contraction-of-private-investment-spending-due-to-deficit-spending\/","url":"https:\/\/exam.pscnotes.com\/mcq\/the-contraction-of-private-investment-spending-due-to-deficit-spending\/","name":"The contraction of private investment spending due to deficit spending","isPartOf":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#website"},"datePublished":"2025-06-01T03:14:02+00:00","dateModified":"2025-06-01T03:14:02+00:00","author":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209"},"description":"The correct answer is A) crowding out. Crowding out is an economic phenomenon where increased government spending, financed through borrowing, leads to a decrease in private sector investment. This happens because increased government demand for loanable funds pushes up interest rates, making it more expensive for private businesses to borrow money for investment projects. - Deficit spending by the government means the government is spending more than it collects in revenue, requiring it to borrow money. - Increased government borrowing increases the demand for funds in the financial markets. - Increased demand for funds, with a given supply, leads to higher interest rates. - Higher interest rates increase the cost of borrowing for private firms and individuals. - This higher cost discourages private investment spending (e.g., on new factories, equipment, or housing), hence 'crowding out' private investment.","breadcrumb":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/the-contraction-of-private-investment-spending-due-to-deficit-spending\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/exam.pscnotes.com\/mcq\/the-contraction-of-private-investment-spending-due-to-deficit-spending\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/exam.pscnotes.com\/mcq\/the-contraction-of-private-investment-spending-due-to-deficit-spending\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/exam.pscnotes.com\/mcq\/"},{"@type":"ListItem","position":2,"name":"UPSC CDS-1","item":"https:\/\/exam.pscnotes.com\/mcq\/category\/upsc-cds-1\/"},{"@type":"ListItem","position":3,"name":"The contraction of private investment spending due to deficit spending"}]},{"@type":"WebSite","@id":"https:\/\/exam.pscnotes.com\/mcq\/#website","url":"https:\/\/exam.pscnotes.com\/mcq\/","name":"MCQ and Quiz for Exams","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/exam.pscnotes.com\/mcq\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209","name":"rawan239","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/761a7274f9cce048fa5b921221e7934820d74514df93ef195a9d22af0c1c9001?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/761a7274f9cce048fa5b921221e7934820d74514df93ef195a9d22af0c1c9001?s=96&d=mm&r=g","caption":"rawan239"},"sameAs":["https:\/\/exam.pscnotes.com"],"url":"https:\/\/exam.pscnotes.com\/mcq\/author\/rawan239\/"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts\/85353","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/comments?post=85353"}],"version-history":[{"count":0,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts\/85353\/revisions"}],"wp:attachment":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/media?parent=85353"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/categories?post=85353"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/tags?post=85353"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}