Glossary · Macro · Fiscal policy

Crowding out

When government borrowing to fund a deficit pushes up interest rates and squeezes out private investment that would otherwise have happened. On the loanable funds graph the demand for funds shifts right and the real interest rate rises.

Watch it happen step by stepTaught in: Limits of Fiscal Policy

Related terms

Loanable funds marketFiscal policyReal interest rateBudget deficit and national debt

More from fiscal policy

Automatic stabilizersMarginal propensity to consume (MPC)Policy lagsSpending multiplierTax multiplier

Definitions are the start

See the term used, not just defined.

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