According to general equilibrium models in contemporary macroeconomics, expansionary fiscal policy could cause crowding out of private activity in the credit market. This argument also flows the other way: 澳洲幸运5官方开奖结果体彩网:Contractionary policy could allow for increased private activity in the credit market. This phenomenon is sometimes referred to in the literature as "crowding꧟ in."

Understanding Contractionary Fiscal Policy

Fiscal policy refers to a government's spending and taxing habits. There are two kinds of fiscal policy direction: contractionary and expansionary. Think of contractionary policy as anything that directly reduces government deficits or increases surpluses. 澳洲幸运5官方开奖结果体彩网:Expansionary policy involves activity that🐠 directly increases♓ deficits or reduces surpluses.

After a tax increase, the government's 澳洲幸运5官方开奖结果体彩网:balance sheet shows more revenue. Similarly, a spending cut is contractionary because it reduces expenditures. According to standard measurements of 澳洲幸运5官方开奖结果体彩网:gross domestic product (GDP), contractionary fiscal policy seemingly reduces total output. Taxes tend to reduce private consumpti𒁃on just as spending cuts reduce government consumption.

Understanding Crowding out and Crowding In

Suppose the federal government increases its fiscal expenditures by $100 billion in a given year. If taxes are politically unpopular, the government normally finances extra spending through borrowing. The federal government borrows money by issuing U.S. Treasuries. In this case, the government issues $100 billion worth of Treasuries. That directly absorbs $100 billion from the credit market, money that might otherwise have been spent on other investments or 澳洲幸运5官方开奖结果体彩网:consumer goods. Public issues take place by c♌rowding out potential private issues.

Moreover, an influx of government 澳洲幸运5官方开奖结果体彩网:debt securities affects interest rates and asset prices. If private individuals are induced to increase their savings to purchase government debt, the 澳洲幸运5官方开奖结果体彩网:real interest rate tends to rise. When real interest rates rise,𒆙 it is more difficult for individuals and small c🃏ompanies to obtain loans.

In a similar fashion, a decrease in government borrowing could leave more money for private investments. Less pressure on interest rates means more room for small borrowers. In the long run, less government spending often means fewer taxes, further increasing the pool of 澳洲幸运5官方开奖结果体彩网:available funds for private markets.

If the government's contractionary fiscal policy leads to surplus, the government can act as a creditor rather than a debtor. The effects of this are no more certain than the effects from 澳洲幸运5官方开奖结果体彩网:deficit spending, but all economists agree it wilಞl have some impact.

Two Types of Crowding In

Some economists have argued that, under the right circumstances, an expansionary government policy might produce crowding in instead of crowding out. If, as Keynesian economists propose, an increase in 澳洲幸运5官方开奖结果体彩网:aggregate demand creates economic expansion, then businesses find it profitable to add to capacity. This boost to the markets, called induced investment, might be stronger than the 澳洲幸运5官方开奖结果体彩网:crowding-out effect.

This is a very different argument t♊han the traditional crowding-in effect, which results from a contractionary fiscal policy. Each argument has its proponents and critics. To further complicate things, some economists allow for a crowding-in effect but disagree about its magnitude and long-term ef🐻fects.

(For related reading, see "澳洲幸运5官方开奖结果体彩网:What Is Fiscal Policy?")