Explain and show graphically how government deficits can "crowd out" private investment
What will be an ideal response?
When the government runs a deficit, public saving falls, reducing the supply of loanable funds and shifting the supply curve for loanable funds to the left, as shown below. The decrease in the supply of loanable funds results in an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loanable funds, moving from point A to point B below. As the equilibrium interest rate rises, the quantity of loanable funds demanded by firms for investments in capital decreases. Increased government deficits raise interest rates, thereby "crowding out" private investment by firms.
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If the price of lumber rises, then, in the market for sawdust
A) the supply curve of sawdust shifts leftward. B) the supply curve of sawdust shifts rightward. C) there is a movement downward along the supply curve for sawdust. D) there is a movement upward along the supply curve for sawdust.
Which of the following did not result in economic growth?
a. Installing a network of irrigation ditches and pumping stations in order to grow fruits and vegetables in parts of southern California b. Cyrus McCormack inventing a threshing machine for harvesting grains c. After World War II, the U.S. instituting the GI bill, which provided education subsidies to soldiers being released from service duty d. Many citizens emigrating from a nation when a politically repressive regime takes office