Economics Crowding Out Questions
The implications of crowding out for income inequality are that it can potentially exacerbate income inequality. When the government increases its borrowing to finance its spending, it competes with private borrowers for funds in the financial market. This increased demand for funds can lead to higher interest rates, making it more expensive for individuals and businesses to borrow and invest. As a result, private investment may decrease, leading to slower economic growth and potentially lower wages for workers. This can widen the income gap between the wealthy and the less affluent, contributing to income inequality.