How crowding out of investment demand occur due to expansionary-00642
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vu cs403 Database Management Systems.
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vu cs403 Mid Term Solved Past Paper No. 4.
Question 1: How crowding out of investment demand occur due to expansionary fiscal policy?
Answer:
In economics, crowding out is any reduction in private consumption or investment that occurs because of an increase in government spending. If the increase in government spending is financed by a tax increase, the tax increase would tend to reduce private consumption. If instead the increase in government spending is not accompanied by a tax increase, government borrowing to finance the increased government spending would increase interest rates, leading to a reduction in private investment, although there is no empirical evidence that supports such interest rate effect on investment
