indirect effect of crowding out
government spends more on social programs and defense without increasing taxes; as a result, the size of the budget deficit increases. consequentl the government must borrow more funds to finance the larger deficit. This increase in borrowing causes the demand for credit (i.e., the demand for loanable funds) to rise, which in turn causes the interest rate to rise. As a result, investment drops. More government spending indirectly leads to less investment spending.