crowding out effect

Question 1

crowding out effect

Answer 1

government borrowing to finance its deficit reduces the availability of credit in the private sector, thereby raising interest rates and reducing private investment

Question 2

crowding out effect graph and why

Answer 2

-interest rate y, quantity x
-s (loanable funds) and d
-demand rises, increase q and interest rates
-increase in interest rates leads to increase in cost of borrowing