Crowding out occurs when the government: (pg. 234 Main, Macro) Crowding out is defined as a decrease in private-sector borrowing and spending because of increased government borrowing. When the government borrows money to finance a deficit it issues bonds. If the private sector buys the bonds, this may mean less credit is available to finance consumption and investment. The result may be a decrease in private-sector spending.
When the federal government runs a budget surplus, it is: (pg. 235 Main, Macro) A budget surplus is an excess of government revenues over government expenditures. This means the government collects more in taxes than it spends. In terms of the circular flow model, dollars leak out of the circular flow as taxes, but they are not injected back in as government spending. The result is an added leakage.
If all of the national debt were owned internally, then: (pg. 240 Main, Macro) Internal debt refers to U.S. government debt or Treasury bonds held by U.S. citizens, businesses, and other institutions. When the bonds come due there is interest that must be paid. The government uses money from taxpayers to pay the interest. The result is a redistribution of dollars from those who pay taxes to those who hold bonds.
Externally held U.S. debt results in: (pg. 241 Main, Macro) External debt is U.S. government debt (U.S. Treasury bonds) held by foreigners. When the bonds are sold to foreigners this allows us to get more public-sector goods without giving up private-sector goods. However, when the bonds come due foreigners will use the dollars to buy U.S. goods and services.
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