What Factors Determine How Much Crowding Out Takes Place?
The extent to which interest rate adjustments dampen the output expansion induced by increased government spending is determined by:
- Income increases more, interest rates increase less, the flatter LM (Liquidity preference—Money supply) curve.
- Income increases less, interest rates increase less, the flatter IS (Investment—Saving) curve.
- Income and interest rates increase more the larger the multiplier, thus, the larger the horizontal shift in the IS curve.
In each case, the extent of crowding out is greater the more interest rate increases when government spending rises.
Read more about this topic: Crowding Out (economics)
Famous quotes containing the words factors, determine, crowding and/or takes:
“Girls tend to attribute their failures to factors such as lack of ability, while boys tend to attribute failure to specific factors, including teachers’ attitudes. Moreover, girls avoid situations in which failure is likely, whereas boys approach such situations as a challenge, indicating that failure differentially affects self-esteem.”
—Michael Lewis (late–20th-century)
“True balance requires assigning realistic performance expectations to each of our roles. True balance requires us to acknowledge that our performance in some areas is more important than in others. True balance demands that we determine what accomplishments give us honest satisfaction as well as what failures cause us intolerable grief.”
—Melinda M. Marshall (20th century)
“The man who reads everything is like the man who eats everything: he can digest nothing, and the penalty of crowding one’s mind with other men’s thoughts is to have no thoughts of one’s own.”
—Woodrow Wilson (1856–1924)
“The incessant repetition of the same hand-work dwarfs the man, robs him of his strength, wit, and versatility, to make a pin- polisher, and buckle-maker, or any other specialty; and presently, in a change of industry, whole towns are sacrificed like ant-hills, when cotton takes the place of linen, or railways of turnpikes, or when commons are inclosed by landlords.”
—Ralph Waldo Emerson (1803–1882)