Question

Government expenditure crowds out private household savings in loanable funds markets.

True or False

Answer 1

True

Government expenditure crowds out private household savings in loanable funds market.

Crowding out term is used when due to increment of government involvement in a market its affect the remainder of the market.as when government expenditure is increases then interest rates will also rises hence due to this private saving reduces.higher the government expenditure ,higher the taxes imposed by the government.Due to higher taxes saving of private household is decreases.As per ceteris paribus when government spending is increases then government wants more fund by doing selling of market etc.due to this demand for money increases.This raises the interest rates which again reduce consumer spending.