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Explain what is meant by the crowding out effect; when does is happen. Provide diagrams

Explain what is meant by the crowding out effect; when does is happen. Provide diagrams

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Answer #1

An increase in the government deficit will increase the interest rate by shifting the supply curve of the loanable fund to the left.

the crowding out occurs when the private firms in the market do not get to invest due to an increase in the interest rate in the market. it happens when the government increase the borrowing and interest rate in the market.

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