Staying Fit
Large amounts of government borrowing can "crowd out" private investment as budget deficits exert upward pressure on interest rates.
If the government borrows large amounts of money, there is less for everyone else, and interest rates tend to rise. Some private borrowers might not be able to afford the higher rates. Of course, many other factors besides deficits influence interest rates, such as the growth rate of the economy and expectations for inflation.
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SOURCE: Federal Reserve Bank of New York
See all terms in the National Debt Glossary
Frequently Asked Questions: National Debt
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