Which one of the following best describes the 'Crowding Out Effect' in the context of fiscal policy ? (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

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UPSC Prelims 2026 · GS Paper 1 · Set DEconomyQ 59 / 100

UPSC Prelims 2026 GS Paper — Question 59

Question

Which one of the following best describes the 'Crowding Out Effect' in the context of fiscal policy ?

(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

Subject

Economy

Topic Reference

Economy — Crowding Out Effect

Official answer awaiting UPSC provisional key

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Official Notification

PIB Release 2262441

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