Question

7. Explain the term Crowding In. What does it refer to, why would it be considered beneficial, and does this mean there is no crowding out? (7 points)

Answer 1

Crowding in refers to a situation where n government deficit funding favors private sector to increase economic activity thereby increasing profitability. Crowding out is also happens because of deficit funding but government borrows money finance these funding at a higher interest rate to attract buyers of bonds which reduces opportunities for private investment.

Yes crowding in is considered beneficial as there would be reduced interest to be paid for borrowing to finance government spending and also it motivates private investors to invest more which would generate employment activities too.