Hi all, What happens if govt runs in budge deficit (according to crowding out theory) on private spending, private saving? Thanks S
private spending will decrease
therefore private saving will increase
Private spending by that you mean consumption and investment? What happens to private saving?
thats correct, individuals and corps will not borrow because it becomes to costly with increased IR people will look at the opporunity cost of investing that money to purchase more later or borrow now @ higher rates to consume. naturally they will save and invest rather than borrow