Macroeconomics › Section R · The impacts of government borrowing › Topic R.1
Government borrowing, investment, and crowding out
A government whose spending outruns its tax revenue must borrow, and the money has to come from somewhere. Following where it comes from shows why large deficits can squeeze private investment, and why that squeeze is much stronger in some years than others.
In this topic
- Where the money comes from
- The identity behind it
- Surpluses switch sides
- Worked example: using the identity
- Three possible responses
- The interest-rate channel
- Why crowding out can matter for growth
- It depends on the economy
- Worked example: multipliers in two settings
- Common mistakes to avoid
- Key takeaways
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