Okay, so crowding out is when the Government is in a deficit, so they sell bonds. Those bonds then compete with other bonds, so some private borrowers get crowded out. In addition, investment spending will be reduced.
Crowding in is when increased Government spending causes real GDP to rise, which induces increases in private investment spending.
This is the part i don't understand. When they crowd out, interest rates go up, which is the same with crowding in because GDP goes up. Why would investment spending be reduced with crowding out, but increased with crowding in?
Crowding in is when increased Government spending causes real GDP to rise, which induces increases in private investment spending.
This is the part i don't understand. When they crowd out, interest rates go up, which is the same with crowding in because GDP goes up. Why would investment spending be reduced with crowding out, but increased with crowding in?
