• An increase in federal deficits reduces the supply of national saving, leading to higher interest rates.
• Crowding out- the displacement or interest investsensitive private investment that occurs when higher government deficits drive up market interest rates. 
• expansionary fiscal policy results in net increase in aggregate demand, leading to greater output in and employment in the short run. 
• others believe crowding out is more extensive, so they believe the opposite. 
• if economy is operating well below potential the additional fiscal stimulus provided by a higher government deficit could encourage firms to invest more. 
• Crowding in- the potential for government spending to stimulate private investment in a dead economy.
• 1993-2013 the japanese government pursued deficit spending that averaged 6.5% relative to GDP as away of getting that flat economy going. 
• government can crowd out some investors by driving up interest rates.

To finance the huge deficits, the U.S. Treasury must sell a lot of government IOUs. To get people to buy more of these Treasury securities, the government must offer higher interest rates. With U.S. interest rates higher, foreigners find Treasury securities more attractive. But to buy them, foreigners must first exchange their currencies for dollars. This greater demand for dollars causes the dollar to appreciate relative to foreign currencies. The rising value of the dollar makes foreign goods cheaper in the United States and U.S. goods more expensive abroad. Thus, U.S. imports increase and U.S. exports decrease, so the trade deficit increases. This means that foreigners have dollars left over after they buy all the U.S. goods and services they want. With these accumulated dollars, foreigners buy U.S. assets, including U.S. government securities, and thereby help fund federal deficits. The increase in funds from abroad is both good news and bad news for the U.S. economy. People will think foreign investment in their town is great. But foreign funds to some extent cause a decline in saving. America was once the world’s leading creditor. Now it’s the lead debtor nation, borrowing huge sums from abroad, helping in the process to fund the federal deficit. Japan and China are big buyers of U.S. Treasury securities.