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Unformatted text preview: The problems created by the national debt can be attacked from another angle. If the government runs a budget deficit, then it spends more than it receives. In order to fund this spending, the government must take out loans. This is usually done by selling government bonds. In order for the government to sell its bonds, it must offer an interest rate that is attractive to investors. When the government sells bonds, money is diverted away from bonds being sold by private companies. Thus, the money that private companies would have received and used as investment funds is instead funneled to the government to fund a budget deficit. This is called crowding out because the government takes investment funds away from the private sector. However, there is a force that works in the opposite direction of crowding out. This force is called crowding in. According to the theory of crowding in, as the government spends is called crowding in....
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This note was uploaded on 12/13/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.
- Fall '10