Crowding Out in the Loanable Funds Market
- Author:
- irumsey
Below is a model of the Market for Loanable Funds. As the government increases government spending (move the slider to the right), the sum of private and public demand for loanable funds increases. Private demand for loanable funds stays constant however. Observe the effect of the change in government spending on real interest rates and the subsequent crowding out in the private loanable funds.