Crowding Out

Sufiyan Hadi

Details

  1. Crowding out is when government finances its spending with taxes and with deficit spending, leaving businesses with less money and effectively "crowding them out". One type of involvement is when there is a lot of borrowing. This borrowing reduces the amount of involvement of the private sector. This all is done with the use of expansionary fiscal policy. How we can visually see this is by 3 ways. If income increases more than interest rate then money supply curve is flat. If income increases less than interest rate then saving curve is flat. If both increase more then curve is horizontal

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