Did the rescue plan crowd out private investment

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Did the rescue plan crowd out private investment?

In mid-2007, on the eve of the onset of the global financial crisis, U.S. investment expenditure was running at $2.2 trillion. The government had a budget deficit of $0.2 trillion, so the quantity of loanable funds demanded and supplied was $2.4 trillion. The real interest rate at the time was 3% per year.

By mid-2009, U.S. investment expenditure had fallen to $1.5 trillion and the real interest rate had risen to 4.5% per year.

What caused the collapse of investment and the rise in the real interest rate?

Reference no: EM13224142

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