What does crowding out have to do with the ability of expansionary fiscal policy to increase spending?

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Lillian72 Lillian72

04-05-2018
Social Studies

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What does crowding out have to do with the ability of expansionary fiscal policy to increase spending?

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MrsTriplet MrsTriplet · Answer 1 · 2018-05-17T18:51:02+02:00

What does crowding out have to do with the ability of expansionary fiscal policy to increase spending? The crowding out effect is when increased interest rates lead to a decrease in private investment spending. Often times when this happens the government will then adopt the expansionary fiscal policy to increase spending to help the economy again. This leads to increased interest rates which has the crowding out affect on private investments being made.