The Loanable Funds Market and Crowding Out- Macro Topic 4.7

Mr. Clifford discusses key macroeconomic concepts, focusing on the loanable funds market. He explains how the demand and supply for loans determine the real interest rate, and how high or low interest rates affect borrowing and lending. The video also covers deficit spending, where government borrowing increases demand for loans, raising interest rates. This leads to the crowding out effect, where higher interest rates reduce private investment, potentially hindering economic growth despite government efforts to stimulate the economy.

How does an increase in government spending influence interest rates?

Describe the crowding out effect and its implications for the economy.