Explain Why Government Budget Deficits Crowd Out Private Investment Spending

question 54

Essay

Explain why government budget deficits crowd out private investment spending in a closed economy, but crowd out net exports in a small open economy. Assume prices are flexible and that factors of production are fully employed in both economies. Assume there is perfect capital mobility for the small open economy.

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Definitions:

Anti-assignment Clause

A provision in a contract that prevents one party from transferring their rights or obligations under the contract to another party without the original party's consent.

Assignment

The conveyance of rights, assets, or duties from one individual to another.

Debris

Scattered pieces of waste or remains left over after the destruction of something, often considered in contexts of natural disasters, demolition, or accidents.

Lawsuit

A legal action brought by one party against another in a court of law.