PRESENTATION ON CROWDING IN &

CROWDING OUT, POLICY MIX.

Presented by
Tanmay Ghosh Dastidar
Sub-Economics
 CROWDING OUT EFFECT
It occurs when effectiveness of fiscal policy is reduced.
Fiscal policy which is a tool of macroeconomic, which consist of
setting the level of taxation and expenditure to effect the macro
economic performance.
Increase in government expenditure cause the interest rate to
increase and investment to decrease.
The government purchases are said to be crowd out investment.
Crowding in-here the interest rate falls and the investment
increases.
NOTE:
Crowding out applies only to structural deficits.
If the reason of deficits is recession, then logic of crowding out
does not apply.
 The recession causes a decline in the demand for money.
 Which leads to lower interest rates.
 The monetary authority tends to loosen monetary policy
in recession.
 Policy mix
 There are two basic tools of macroeconomics : i:e fiscal
policy and monetary policy.
 Policy-mix refers to combination of fiscal and
monetary policies used to influence macroeconomics
activity.
 These two components are generally determined by
RBI, influence the growth and employment.
 Ideally the policy mix should be aimed at maximizing
the growth and employment