Question

I am confused by average take-up and crowd-out terminology. Maybe I just need an explanation. Is there a set formula for average take-up and crowd-out? Thank you!

Answer 1

Crowding out is a macroeconomic situation which originated from government deficit spending . In such a case the government spends more than it has , forcing it to borrow the rest to cover the shortfall. Shortfalls in the economy have a tendency to increase interest rates ahich ultimately reduces corporate investments . The government , in an attempt to raise more funds , will issue government bonds which will attract most savers away from private bonds . This situation results in the crowding it effect where the private institutions suffer a reduction in their access to the economy's savings.

Take up also originates from government deficit spending but relies mostly on how much the government puts in to increase economic activity . An increase in economic activity creates an opportunity for business to increase their operations towards profitability . Thus the private sector takes up to satisfy increasing consumer needs.