Crowding out effect

The crowding out effect is an economic theory arguing that rising public sector spending drives down or even eliminates private sector spending.

One of the most common forms of crowding out takes place when a large government, like that of the U.S., increases its borrowing. The sheer scale of this borrowing can lead to substantial rises in the real interest rate, which has the effect of absorbing the economy’s lending capacity and of discouraging businesses from making capital investments—Read more at Investopedia. Kenton, Will. “Crowding Out Effect.” 30 April 2019.