Which term is commonly considered the opposite of crowding-out?

• A. Crowding-in
• B. Liquidity preference
• C. Ricardian equivalence
• D. Fiscal drag

Answer: (A)

When the government spends more or runs a larger deficit, the impact on private investment depends on how the rest of the economy responds. The opposite of crowding-out is crowding-in, a situation where fiscal expansion raises overall demand and, under the right conditions, encourages more private investment rather than deterring it. This can happen when there are idle resources or monetary policy keeps interest rates low, so higher government spending boosts incomes and profits, prompting firms to invest more. The other ideas listed aren’t describing this opposite effect: liquidity preference is about holding cash versus bonds, Ricardian equivalence argues debt may be neutral for demand due to tax expectations, and fiscal drag refers to policies that slow the economy.