crowding out

Examples of crowding out in the following topics:

• Crowding-Out Effect

  • The macroeconomic theory behind crowding out provides some useful intuition.
  • Thus, the government has crowded out investment .
  • The increased borrowing crowds out private investing.
  • The extent to which crowding out occurs depends on the economic situation.
  • Therefore, the effect of the stimulus is offset by the effect of crowding out.

• Government Failure

  • Economic crowding out occurs when the government expands its borrowing to pay for increased expenditure or tax cuts.
  • The expanded borrowing is in excess of its revenue which crowds out private sector investment due to higher interest rates.
  • Government spending also crowds out private spending.

• Interest Rate Levels

  • Crowding out is a phenomenon occurring when expansionary fiscal policy causes interest rates to rise, thereby reducing investment spending.
  • That means increase in government spending crowds out investment spending.

• Expansionary Versus Contractionary Fiscal Policy

  • The effects of fiscal policy can be limited by crowding out.
  • Crowding out occurs when government spending simply replaces private sector output instead of adding additional output to the economy.
  • Crowding out also occurs when government spending raises interest rates, which limits investment.

• Stability Through Fiscal Policy

  • The argument mostly centers on crowding out, a phenomenon where government borrowing leads to higher interest rates that offset the stimulative impact of spending.
  • Neoclassical economists generally emphasize crowding out, while Keynesians argue that fiscal policy can still be effective especially in a liquidity trap where, they argue, crowding out is minimal, while Austrians argue against almost any government distortion in the market.
  • Some classical and neoclassical economists argue that crowding out completely negates any fiscal stimulus; this is known as the Treasury View, which Keynesian economics rejects.

• Effect of a Government Budget Deficit on Investment and Equilibrium

  • A budget deficit will typically increase the equilibrium output and prices, but this may be offset by crowding out.
  • This is due to a phenomenon called crowding out.
  • The increase in the interest rate reduces the quantity of private investment demanded (crowding out private investment).

• The Boston Massacre and Military Occupation

  • The soldiers fired into the crowd without orders, killing three people and wounding others.
  • Edward Garrick began calling out insults to White and another British officer, Captain Lieutenant John Goldfinch.
  • As the evening progressed, the crowd around Private White grew larger and more boisterous.
  • Church bells were rung, which usually signified a fire, bringing more people out.
  • After a tense standoff, the soldiers fired into the crowd.

• Crowds

  • Crowds are a common occurrence in modern life.
  • Blumer (1951) differentiated four types of crowds:
  • Violent crowd behavior without a specific goal is a riot.
  • He interprets the crowd episodes of the French Revolution as irrational reversions to animal emotion, which he sees as characteristic of crowds in general.
  • In other words, if a crowd becomes violent (a mob or riot), convergence theory would argue that this is not because the crowd encouraged violence but rather because people who wanted to become violent came together in the crowd.

• The Storming of the Bastille

  • The crowd clashed with royal troops and unrest was growing.
  • The negotiations dragged on while the crowd grew and became impatient.
  • Around 1:30, the crowd surged into the undefended outer courtyard.
  • A letter offering his terms was handed out to the besiegers through a gap in the inner gate.
  • His demands were refused, but de Launay nonetheless capitulated, as he realized that with limited food stocks and no water supply his troops could not hold out much longer.

• Funding the International Business

  • Procuring funding in the modern economy can be highly diversified, from borrowing debt from banks to pursuing angel investors to crowd-sourcing funding for a small startup project.
  • For small organizations, debt and equity are often accompanied by venture capital and crowd-sourcing (particularly in the startup world).
  • These are also lower costs of capital as they are paid out before equity in the case of a bankruptcy.
  • Crowd-sourcing - Websites like Kickstarter and Indiegogo are unique and modern formats, where potential business ideas can garner capital and support prior to producing a given product or service.
  • Understanding options like crowd-sourcing can substantially lower the risk of borrowing, and enable small organizations to grow.