Crowding out refers to the situation in which Group of answer choices borrowing by the federal government raises interest rates and causes firms to invest less. foreigners sell their bonds and purchase U. S. goods and services. borrowing by the federal government causes state and local governments to lower their taxes. increased federal taxes to balance the budget causes interest rates to increase and consumer credit to decrease.

Borrowing by the federal government raises interest rates and causes firms to invest less

Explanation:

Crowding out is an economic concept whereby increased federal Government spending and deficit financing i.e borrowing by the federal government sucks up the financial resources therefore leading to hike in interest rates to pay up the money borrowed by the government.

This economic concept leads to decrease in firms or individual involvement in financial and business activities due to the hike in interest rates and the resultant inflation that comes with it.

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