It is claimed that budget deficit (through the increase in government spending) helps to stimulate aggregate demand. At the same time, it is also claimed that budget deficit crowds out private expenditure, which in turn can reduce aggregate demand. 1. Which scenario is more likely to happen in the real world? 2. What are the consequences of financing the deficit by increasing foreign borrowing in order not to induce increase in saving that would crowd out the private expenditure? Hope anyone can shed some light on these. Cheers.