In the context of the loanable funds market, how does the crowding out effect influence private sector borrowing when the government increases its borrowing through financial intermediaries?

The crowding out effect happens when the government borrows a lot of money, which can lead to less money being available for private businesses and individuals to borrow. When the government takes out loans, it increases the demand for loanable funds, which can drive up interest rates. Higher interest rates mean that it becomes more expensive for private borrowers to take out loans, so they might decide to borrow less. For example, if a small business wants to expand but sees that interest rates have risen because the government is borrowing heavily, it may choose to delay its expansion plans. This shows how government borrowing can limit private investment and spending by making loans less affordable.