Crowding out occurs when an increase in government spending ______ the interest rate and investment ______.

Crowding out is a concept in macroeconomics that describes a situation where increased government spending leads to higher interest rates, which in turn results in a decrease in private investment. When the government increases its spending, it often needs to borrow more money to finance this spending, which can lead to an increase in the demand for loanable funds. This increase in demand tends to raise interest rates.

As interest rates rise, the cost of borrowing also increases for private businesses. Higher interest rates make it more expensive for these businesses to finance their investment projects, leading to a reduction in overall private investment. Thus, the notion of crowding out illustrates how government spending can "crowd out" private investment by creating upward pressure on interest rates.

In this context, the correct understanding of the relationship between government spending, interest rates, and investment is critical in macroeconomic analysis.