what is the 'crowding in' effect? (1 Viewer)
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do u mean the crowding out effect? 
Basically, governments borrow money (by issuing bonds) to fund additional spending. The problem occurs when government debt 'crowds out' private companies and individuals from the lending market.
Increased government borrowing tends to increase market interest rates. The problem is that the government can always pay the market interest rate, but there comes a point when corporations and individuals can no longer afford to borrow.
Basically, governments borrow money (by issuing bonds) to fund additional spending. The problem occurs when government debt 'crowds out' private companies and individuals from the lending market.
Increased government borrowing tends to increase market interest rates. The problem is that the government can always pay the market interest rate, but there comes a point when corporations and individuals can no longer afford to borrow.
Atticus.
how do i get out of this
there is deff crowding in...
opposite
opposite
okay..let me try to consolidate this. So the crowding IN effect, which is the exact opposite would mean that the recent budget's unexpected rise in surplus due to surging commodity prices, will cancel out the need for govt to borrow $ to fund expenditure, therefore, NOT affecting the interest rates whcih "crowds in" private companies and individuals from the lending market. This will probably help finance our CAD right?? So in this sense, crowding in must be a GOOD effect. Am i right?Sarah168 said:do u mean the crowding out effect?
Basically, governments borrow money (by issuing bonds) to fund additional spending. The problem occurs when government debt 'crowds out' private companies and individuals from the lending market.
Increased government borrowing tends to increase market interest rates. The problem is that the government can always pay the market interest rate, but there comes a point when corporations and individuals can no longer afford to borrow.
ifsonotso_100
Meh
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don't worry u will never get asked a crowding in question in the hsc. just try to understand the crowding out concept
yoshimanu
Our Deepest Fear...
Do you have excel HSC economics? its pretty crap.. but it does have a bit on crwoding- in effect....
' The use of funds by the public sector can also work in the opposite direction to the crowding out effect- this is known as the crwoding in effect. the crwoding in effect is the tendency for an increase in government spending to increase invetment., this can happen in two ways:
1. increased govt spending in a recession may create expectations of a more speedy recovery and therefore of an increase in profits. this expected increase in profit shifts the invetment curve to the right, and the investment increases despite an increase in interest rates.
2. Increased spending on puvlic capital, or infrastructuire, my increase the profitability of private capital and lead to an increase in investment' - Excel HSC, Economics
' The use of funds by the public sector can also work in the opposite direction to the crowding out effect- this is known as the crwoding in effect. the crwoding in effect is the tendency for an increase in government spending to increase invetment., this can happen in two ways:
1. increased govt spending in a recession may create expectations of a more speedy recovery and therefore of an increase in profits. this expected increase in profit shifts the invetment curve to the right, and the investment increases despite an increase in interest rates.
2. Increased spending on puvlic capital, or infrastructuire, my increase the profitability of private capital and lead to an increase in investment' - Excel HSC, Economics
yoshimanu
Our Deepest Fear...
Essentially, crowding out the the economic ideology that the private sector is more efficient than the public sector. it goes.. that if there is a large public sector borrowing requirement, there will be a reduction in the available funds for the private sector- this is because to finance debt of the public sector, interest rates will be raised(through monetary policy) ensuring that the private sector is 'crowded out'.nosadness said:
it is part of topic four in fiscal policy. in the syllabus it would be under the point- 'methods of financing deficits'