Financial Crowding Out:

Financial crowding out occurs when the government increases its expenditure and finances it by selling new bonds in the money market. When the government sells bonds, the prices of securities fall and interest rates rise. as a result, the private sector postpones or curtails some schemes because obtaining funds has become dearer. Thus the government expenditure crowds out private investment spending. Total financial crowding out occurs when the bond financed government expenditure equals the same amount of displaced private investment.