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Finance: What is Crowding out? 2 Views

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Description:

What is Crowding out? Crowding out is a phenomenon that occurs when the government enters into a sector in an economic fashion and its size creates a domino effect of other consequences that create disincentives for comparable or related actions in the private sector. For example, when the government enacts a stimulus package, an accompanying rise in interest rates may make financing projects in the private sector too costly.

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Transcript

00:00
Finance, a la shmoop. What is crowding out? Alright people think of the fraternity [People dancing at a party]
00:08
party where you were smushed in the corner or couldn't even get in the door. [People outside waiting to get in]
00:12
Yeah long line to the keg, people scrambling for the punch, you were
00:16
crowded out of the party. All right now replace all the large smelly dudes who [Crowded out stamp]
00:22
say dude a lot, with banks now preferring high interest rates and you're the [Silhouettes of muscly guys replaced with banks]

00:27
private investor in the middle hoping to invest money, at the bar. While crowding
00:32
out happens when governments have had an expansionary fiscal policy with the hope
00:37
of increasing economic activity. Right they're doing all kinds of things they
00:41
can to stimulate the economy and move things along right? Well this activity [Big sack of money]
00:45
leads to the government grabbing funds that might otherwise be loaned to the [The sack is taken away]
00:49
private sector by borrowing money from them and results in higher interest
00:53
rates so who gets nailed in this scenario? You, this guy in the middle the [Nail being hit with a hammer]
00:58
one trying to get to the bar, borrow money and put go to work but you can't [Guy unhappy being squished in the corner]
01:02
do it because you are crowded out under a deluge of high interest rates or costs [Guy in a suit being surrounded by the banks]
01:07
of renting money that you had wanted to put to work to expand your garden gnome [Guy in a suit flies away]
01:12
producing business or whatever you do. So instead you just try not to get elbowed [Guy at the party is elbowed in the face]
01:17
in the face too much info eventually you can get pushed to the bar, good luck.. [Guy on the floor with bruises on his face]
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