5.5 Crowding Out

Ace your homework & exams now with Quizwiz!

Assuming the government increases deficit spending what will happen to the demand for loanable funds, the real interest rate, and private investments?

- Demand increases - real interest rate increases - private investment decreases

What is crowding out?

when government budget deficits have a negative effect by driving up interest rates and reducing investment due to expansionary fiscal policy.

What is the long-run impact of higher real interest rates?

less economic growth bc investment falls, less capital stock

What does crowding out lead to?

it leads to less private investment spending


Related study sets