AP Macroeconomics / Unit 5: Long-Run Consequences of Stabilization Policies
5.5 Crowding Out
Notes
Government borrowing raises real interest rates, which reduces private investment (crowding out).
- Less investment can slow long-run growth.
Practice
Crowding out means government borrowing:
Competes for loanable funds.
Crowding out can reduce:
Less capital investment.
Crowding out weakens the effect of:
Investment falls as G rises.
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