Money & Finance · intro
What moves on the Loanable Funds Market diagram
Deficits reduce national saving, shifting funds supply left, rates rise and crowd out private investment.
Start with saving funding investment at r*.
The government borrows heavily, absorbing national saving, the supply of funds shifts left.
Interest rates rise and private investment is squeezed: crowding outcrowding outWhen government borrowing raises interest rates and squeezes out private investment., drawn.
Examiners ask this as: budget deficit crowding out, government borrowing, deficit interest rates.
Other scenarios on Loanable Funds Market