Article Analysis #4

Article Analysis #4 - are already about as low as possible...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Colin Desmond 2-11-09 Professor Andrew Meyer Macroeconomics - 010 Rec. #14 Article Analysis #4 In his column in the New York Times , Paul Krugman wrote about the skepticism of large amounts of government spending could cause crowding out by means of their deficit, and worsening our situation. Crowding out is when the government encounters debt, and enters the market for loanable funds. Hypothetically, in increasing the demand for loanable funds, the government increases the interest rate, and decreases private demand for loanable funds. However, certain conditions can prove economic theories wrong. This is why Krugman argues that at our given economic health, such an effect will not occur. According to Krugman, short-term interest rates (mainly controlled by the Fed),
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: are already about as low as possible, and the Fed won’t change this unless it sees a massive improvement in the economy. The thought of the economy overheating any-time soon is a fantasy at best. Long-term interest rates “reflect expected future short-term rates”, and as I said, the chance of short-term interest rates increasing in the future is very small. That being said, the increase in government borrowing will not cause a crowd out; a decrease in private demand and an increase in interest rates. Some may question the emergence of a shortage if rates aren’t going up but de-mand is. Hopefully, the government’s stimulus bill will prevent this shortage, keep money flowing, and interest rates low....
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online