Re: fiscal deficit

["Kazuhiro Kurose" <kurose@xxxxxxxxxxxxxxxxxxxxxx>]

Hi Sean

> "Because money supply is endogenous,therefore, "crowding out" can't arise."
>
> Theoretically, correct, however what I have seen happen in the real world
> this is not the case.  There is a so-called crowding out that takes place,
> but businesses call it a credit crunch.  So, in practice, I am not so sure
> that I agree with the theory.

I think that "crowding out" is essentially different from "credit crunch". The former means that a high level of
interest rate because of fiscal deficit restrains the amount of private investment. According to my understanding, the
latter means that banks are reluctant to lend because of, for example, bad balance sheet. Therefore, the former is
related to the price, interest rate, and the latter is related to the quantity rather than the price. Is this trivial
difference??

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  Kazuhiro Kurose
  Graduate School of Economics and Business
  Administration, Hokkaido University
  Kita 9 Nishi 7, Kita-Ku, Sapporo, Japan
  060-0809
    TEL: +81-11-716-2111 ex:2786
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