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Crowding Out of Physical Capital Investment

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

What is Crowding Out of Physical Capital Investment? A larger budget deficit will increase demand for financial capital. If private saving and the trade balance remain the same, then less financial capital will be available for private investment in physical capital....

Fiscal Policy Limitations

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

What are the Limitations of Fiscal Policy? Fiscal policy can help an economy that is producing below its potential GDP to expand aggregate demand so that it produces closer to potential GDP, thus lowering unemployment. However, fiscal policy cannot help an economy...

Government Borrowing

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

What is Government Borrowing?When governments are borrowers in financial markets, there are three possible sources for the funds from a macroeconomic point of view: (1) households might save more; (2) private firms might borrow less; and (3) the additional funds for...

Fiscal Policy and the Aggregate Supply and Demand Curve

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

How does Fiscal Policy Affect the Aggregate Supply and Demand Curve? The result of this is regular shifts to the right of the aggregate supply curves. The original equilibrium occurs at E0, the intersection of aggregate demand curve AD0 and aggregate supply curve...

Fiscal Policy and Trade Balances

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

How does Fiscal Policy Affects Trade Balances? Government budget balances can affect the trade balance. A net inflow of foreign financial investment always accompanies a trade deficit, while a net outflow of financial investment always accompanies a trade surplus. One...
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