Which statement is NOT a consequence of crowding-out?

• A. Higher interest rates
• B. Reduced private investment
• C. Slower private-sector growth
• D. Decreased government debt

Answer: (D)

Crowding out happens when the government borrows to finance deficits, which increases the demand for loanable funds and pushes up interest rates. Higher interest rates make it more expensive for businesses to borrow, so private investment falls. With less private investment, private-sector growth slows. The statement about decreased government debt doesn’t fit this pattern because borrowing to fund deficits raises the government’s outstanding debt, not lowers it. In standard scenarios, debt accumulates as deficits are financed, even if growth or policy twists can affect the magnitude of the impact.