Question

1. Projected government deficit in 2019 compared to 2018 has increased from $0.89 trillion to $0.99....

1. Projected government deficit in 2019 compared to 2018 has increased from $0.89 trillion to $0.99. Discuss how this maybe related to the concept of "crowding out".

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Answer #1

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Increase in government deficit = .99-.89 = $.1 Trillion

Since the increase in government deficit is $.1 Trillion, there will be an increase in government spending to boost the economy. But, the government will take the funds from the same market that is used by the private firms. Hence, it will make government to crowd out the private players from the market. As a result, the private investments will be discouraged. So, it is said that increase in government spending (shown by the increase in government deficit) will create crowding out effect in the economy.

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