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UPSC Civil ServicesPrelims2026General Studies Paper I
Question
QQ94. Which one of the following best describes the ‘Crowding Out Effect’ in the context of fiscal policy ?
Options
- A A situation where private investment increases due to increased Government spending
- B A situation where Government borrowing leads to higher interest rates, which reduces private investment
- C A situation where an increase in taxes leads to increased private sector investment
- D A situation where Government spending has no impact on aggregate demand
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Correct Answer
B A situation where Government borrowing leads to higher interest rates, which reduces private investment
Model Answer
Answer: option B, as per UPSC's provisional answer key of 27 May 2026 (Series A). UPSC publishes the final key after the exam's final result.