How does private savings impact investment? Why is it important for individuals to save in an economy? How do public policies such as tax policies affect savings rates? How do government budget deficits affect interest rates?
Private savings impacts investments when people save more money, they are increasing the supply of loanable funds. In turn, the interest rate also increases. It is important for an individual so save in an economy so that the funds are available for others to borrow on interest in order to build the economy. Tax policy affects saving rates by encouraging people to save more because less taxes will be taken off of the interest that is gained on the money that is saved. Since the demand on borrowing does not change, and people are able to borrow at a lower interest rate, there is more savings to be used for investments. Government budget deficits affect interest rates because they take out the private lender by issuing bonds. The demand for investment funds does not change, but the since the supply of loanable funds is down, the interest rate is raised.
The US is running record budget deficits. Define crowding out. Look for an article talking about it. Do you think it’s a problem? Why or why not?
According to “Investopedia,” crowding out is defined as high government spending that takes the ability for people to have money to spend on lending themselves. This drives up the interest rates and makes people less apt to borrow money to grow their businesses.
In J.H Cullum Clark’s article, “Historical look at national debt teaches unambiguous lesson,” he discusses how crowding out has historically been detrimental to the economy of numerous different countries. When government spending is reeled in, the economies are more prosperous. I think it is a problem to crowd out the private sector because when the interest rates rise and people are not investing in their businesses, this leads to less tax revenue. It becomes a vicious cycle.
https://www.investopedia.com/terms/c/crowdingouteffect.asp
https://lasvegassun.com/news/2020/mar/02/historical-look-at-national-debt-teaches-unambiguo/
My Journey into Macroeconomics 