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What is crowding out? How does budget deficit crowd out investment? Why is a high level...

What is crowding out? How does budget deficit crowd out investment? Why is a high level of government debt is a matter of concern?

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Crowding out is a reduction in the private investment due to an increase in the interest rate, when the government borrow at a higher rate the supply of the loanable fund in the market decrease, it will increase the interest rate and decrease the supply of funds in the market. Budget deficit is leads to government borrowing and that decease the supply of funds and increase the interest rate, crowding out the investment.

A higher debt is a matter of concern because it also leads to higher borrowing and that will increase the debt servicing, decreasing the room for government spending.  

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