I’m unable to understand the concept of crowding out effect. Could anyone please clear this doubt . Thanks in advance
Suppose that the government decides to invest a lot of money building infrastructure. Because of the government doing the work, a private company (that had planned to build the infrastructure itself) no longer does the work. That’s crowding out: the government expenditure doesn’t increase output (as hoped), it simply moves it from the private sector to the public sector.
Thank you sir .
My pleasure.
Where did you read this concept? Which reading, to be precise?
It’s in Reading 19. They mention crowding-out with respect to government spending, and also with respect to government borrowing. Schweser mentions these on pp. 196, 197.