Crowding Out and Crowding In
Crowding Out and Crowding In
- Crowding out--When the government undertakes expansionary fiscal policy, interest rates increase due to competition for borrowed funds and increased transactions demand for money
- As a result, private investment is “crowded out” due to increases in public investment
- Crowding in—If expansionary fiscal policy raises the general level of prosperity in the economy, private investors may expect greater investment-related profits, causing private investment to increase