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

1. (a) A situation where private investment increases due to increased Government spending
2. (b) A situation where Govt borrowing leads to higher interest rates, which reduces private investmentCorrect answer
3. (c) A situation where an increase in taxes leads to increased private sector investment
4. (d) A situation where Government spending has no impact on aggregate demand

Answer: (b)