A government adds to the national debt when it runs a budget deficit.

A government must pay interest on its accumulated debt, thus increasing the national debt and increasingly forgoing using those funds for alternative uses. [See also crowding out.]

When a government is in budget deficit, it typically borrows to finance its spending.

A loanable funds market model can be used to show the effect of government borrowing on the equilibrium real interest rate and the resulting crowding out of private investment.

Crowding out refers to the adverse effect of increased government borrowing, which leads to decreased levels of interest-sensitive private sector spending in the short run.

A potential long-run impact of crowding out is a lower rate of physical capital accumulation and less economic growth as a result.

Explain the issues involved with the burden of the national debt.

Define crowding out.

Explain (using graphs as appropriate) how fiscal policy may cause crowding out.