Question

Discuss the “crowding-out effect” that might be emerged in goods market and what lies under the size of the crowding-out effect? (show graphically)

Answer 1

When excessive amounts of loanable fund is taken by the government, it increases the interest rate in the market and due to increased interest for private players, they are unable to borrow and their private investment stops, which affects the economy. That is, job cut and production loss can be seen in the economy.so private player or investors are slowly slowly out of market and this phenomena called as crowding out effect.

If crowding out size is more than it may affected economy badly and their may be unemployment and production loss in the economy and this may be bad for foreign direct investment as economy ratings may be comes down by agencies as not a better destination for investment.