Answer-The 'Crowding Out' effect of fiscal policy refers to:

Crowding Out is a potential negative consequence of expansionary fiscal policy increased government spending or tax cuts when it is financed by borrowing from the domestic loanable funds market . The government increases its demand for funds to finance its deficit. This increased demand competes with private borrowers firms wanting to invest for a limited supply of savings. This competition drives up the real interest rate . Higher interest rates make borrowing more expensive for private firms, leading them to postpone or cancel investment projects . Thus, the increase in public sector activity crowds out private sector investment, potentially reducing the overall effectiveness of the fiscal stimulus.