Fiscal Policy - Crowding Out Effect? Absolutely baffledWatch
Argument 1 -
Expansionary fiscal policy reduces investment spending by the private sector.
The increased borrowing 'crowds out' private investing. ----
WHY would the increased borrowing 'crowd' out private investing????
Argument 2 -
Government spending provides a good or service that would otherwise be provided by the private sector, and be subject only to the economic forces in voluntary exchange.
I understand argument 2, but fail to understand 1.
Presumably argument 1 means increased borrowing by the government as a consequence of an expansionary fiscal policy filters through to increased interest rates? Or what?