Its actually insane how I could spend a week listening to my professor talk about a topic and not understand a single thing and a 3 minute video of you talking at a super fast speed makes me understand it immediately
I've been watching this guys economics videos since high school. I'm currently in my second year at uni and still using these videos to understand things! Thanks for the help over the years!
Thank you so much!!! I wish I would have looked up to your videos for micro lol. Anyways you are a big help for my macro class and help me understand what the teacher is trying to say.
Because this is the Market for Private funds, many other sources I've reviewed are depicting crowding out as a leftward shift of the supply curve, because there is a reduction in the supply to the private market. The result is still a higher interest rate. Thoughts?
Most likely depends on how one defines the demand and supply for loanable funds. If you define it as private funds, then yes, but this is a different definition.
I kind of get it. The issue is that the government needs money, it goes to loanable fund market to get money, then the demand for loanable fund increase and the interest rate increases too, then people will not borrow money because the interest rate is high, so it turns out that the government hurts the economy though it came first to help it. Is that correct?
The cautionary note is, if investment is low for reasons other price of debt (say pessimistic about the economy) then crowding out might not happen. Also government spend has other effects some of which might be beneficial (building roads etc) unemployment insurance (counter cycle effects). Like all gov actions care needs to be taken.
Why is there an increase in demand for loanable funds while there’s an increase in interest rate? I could see why cause the rise in D for loan but is that the Demand for the government or the people?
so basically.. when the government deficit spends, it increases the money supply which causes the interest rates to go up and investment falls. ( from previous video)
I understand the video. but in my textbook it says, when government ran a budget deficit, it shifts a supply curve to the left, as national saving-source of the supply of loanable funds-will decrease along with the decreasing public saving. so which I should follow or it depends? In this case, quantity of loanable funds increased, but in textbook case, it decreases. Pls someone help me!!!!!!
Fuck the book. Sometimes its easier to look up the definition on the internet with a clearer explanation. Don't worry, it won't be wrong on the test if you fill it in differently than as stated in the book.
Did it ever explain why the national saving source of the supply decreases or why there would be a decrease in public saving? In the short run, I believe demand curve should shift right.
that's only in financial investment i.e. stocks - higher rate of return, more demand. but, for the people who want to take out loans for investment spending (different from financial investment) a high interest rate means that they're going to have to pay back a lot more. The interest rate is high because the government is borrowing as well, which increases demand for loans, and the interest rate with it. So a private investor (not the government) is not going to be able to get a good loan.
Hey Mr. Clifford, I just wanted to point out that the graph of the loanable funds market after the government deficit-spends in 1:49 conflicts with the graph you provided in the ultimate review packet for unit 5 topic 5 (Crowding Out). Thanks!
uh, when the money supply increases, interest rate FALLS, causing investment to GO UP. when investment goes up, then AD will also go up, bringing up Y. But because Y goes up, the money demand will go up, bringing up in interest rate and thus, weakening the original policy.
My textbook showed "crowing out" as a decline in the supply rather than an increase of demand. Does it work both ways or is my textbook wrong? "Suppose the government runs a budget deficit. To fund the deficit, it sells bonds to households, decreasing the supply of funds available to firms. This raises the equilibrium real interest rate and decreases the funds loaned to firms. This is crowding out: the decline in private expenditures as a result of increases in government purchases. "
Well both of them cause an increase in real interest rate, so it can still be used to show the crowding out effect. But I still believe only one of them is correct.
I thought the government's main method of raising funds was not the purchasing of debt but the selling of bonds. How would the selling of bonds affect the interest rates in contrast to simply borrowing money?
If the government wants to close a recessionary gap by increasing aggregate demand, then why would they want to decrease investment spending? Is it because crowding out causes a greater net aggregate demand from increased consumer spending over decreased investment spending?
Hey quick question! Couldn't find anything in your videos, or even my textbook. Question for my final exam is "How to mitigate the crowding out effect". I have a solid understanding of what the CO effect is, but unsure as to how to mitigate it. Any thoughts?? Thanks man!
There are two problems with this model. Loanable funds does not exist for neither the government nor the banking system. Governments issue bonds on the primary market to primary dealers (usually banks but there are exceptions). These auctions have special rules that guarantee bond sales. Also any transfers to and from the treasury's account at the central bank affects total reserve balances. In the case of bond sales, reserves are drained. What central banks have to is to counteract the drainage in the banking system, otherwise they won't hit their short term interest rate target (fed funds rate). Either banks have to come to the discount window or the central bank has to add reserves through its open market operations. No other borrower has such a nicely rigged borrowing scheme as the government. As for banks, they lend to and purchase assets from the private non-banking sector by crediting accounts. Reserves are used for interbank settlement, not actual lending. Read the 2014 BoE article on money creation. Fantasy like all folly must come to an end. This is just pure nonsense.
any other way that I can support you? You helped me get an A+ in both macro and Micro economics in university. I feel like buying the package for 10$ was to cheap. You are amazing, is their any way I can donate to you?
But the quantity of money increases in the loanable funds market according to your demand curve shift. There is incentive to save, then. Would not the supply of loanable funds decrease, this raises int. rates and dec. loanable funds, thus crowding out new capital purchases?
1:16 is not correct, I believe. The government actually creates money when it deficit spends. The borrowing is to offset excess liquidity in the banking system that resulted from its spending. Aka, the Fed drains excess bank reserves using sale of newly issued treasuries in order to maintain the target fed funds rate.
I have a question, in my university, our lecturer describes crowding out as a decrease in supply (because of the government that takes a part that will not be able to be supplied) is it the same thing as you?
But if government borrows and increases the interest rate, wouldnt that increase Investment? Increased demand increases the rate. Less people borrow but more people want to invest/save since there is a higher interest rate. Can someone please help me understand why I goes down and not up?
I think you confuse government investment and firms investment. sure government investment is public spending and it will increase but the extent of increase might be compensated by the decrease in firms investment. Now saving and investing is different. When interest rate increases, the cost of borrowing will increase, and hence firms will have less incentive to invest (firms invest by borrowing money from bank). thus this leads to lower firm investment People would want to save more since it is more profitable to save rather than consume due to higher return in the future Do I make sense? hahahaha hope this helps :)
Its actually insane how I could spend a week listening to my professor talk about a topic and not understand a single thing and a 3 minute video of you talking at a super fast speed makes me understand it immediately
Sir I believe you have taught at least half of our generation economics you are a true
He is indeed a true
I might as well not have a first period and just watch your videos because all my teacher does is show us your videos in class..
***** literally me rn
+Talfo08 omg same!
so true
OMG IKR
this comment hit different
I wish more teachers were as cool as youtube tutors.
Alec Byres Amen to that Bratha !!
ok marvin cool
No for real
My school needs to fire all the incompetent teachers and hire these youtuber teachers instead. Good educators are so rare these days
+GAO Xiang2 Agreed
dude youre goddam right
Raise wages for teachers. There’ll be a lot more quality teachers that way.
I've been watching this guys economics videos since high school. I'm currently in my second year at uni and still using these videos to understand things! Thanks for the help over the years!
You, sir, have done students everywhere a great service. For this, we thank you.
I bought your packet and it was the best decision of my life. Thanks a million Clifford you're the GOAT
You are so cool!! Even if you talk moderately fast, I still get your point in a very clear and concise manner! thumbs-up, man! :)
I just love your videos!!!!! I read and read and only semi grasp the concepts and then I watch a 3 minute video and it makes total sense!
I wish all professors had your gift of teaching............. THANK YOU, MR. CLIFFORD.
You deserve a Nobel Peace Prize for saving AP Macro Students' lives.
I'm self studying AP econ and your videos help me a lot!!! Million thanks, with your help I will definitely get two fives
this dude is so concise. he probably gets the lesson that other professors need an hour or more to teach over with in 10 minutes
Explained very well. I wasn't sure what crowding out was, but now I know.
might as well refund my tuition fees cos watching this man's 3min vids solves what lecturers exaggerate in their 2hr lectures. Thanks a lot Sir.
Frankly, I didn't spend a minute focusing on my teacher's lesson, just because I found Jacob Clifford's videos haha
Hit the thumbs up, youre a good man Clifford, you help me through college... great man
short precise and easy to understand. you make economics sound easier unlike lecturer
you channel is so incredible. your videos just make everything click for me. thanks so much!
This guy looks a lot like Mark Cuban.
I'm not the only one who thought that?! Yeah, he does.
THANK YOU. MY FIRST THOUGHT
This video helped me tremendously with my college research paper. Thanks so much!
thank you so much. these videos are saving my life rn
My exam is in one hour. Thanks for your video! Super super helpful!
Thank you so much!!! I wish I would have looked up to your videos for micro lol. Anyways you are a big help for my macro class and help me understand what the teacher is trying to say.
I've been watching all of your videos in preparation for an exam; thank you!
your videos are SO helpful, i learned more from you than my econ professor. thank you for making them!!!!!
You make it SO interesting and easy to understand. Thank you for making my exam 10x easier!
YOU are AMAZING in every sense of the word! Thank you so much for these videos. They're interesting to watch and easy to understand. :)
Thanks Mr. Clifford. Our IB Econ class loves your videos and I'm going through now to review for my final. We especially love econmovies.
Because this is the Market for Private funds, many other sources I've reviewed are depicting crowding out as a leftward shift of the supply curve, because there is a reduction in the supply to the private market. The result is still a higher interest rate.
Thoughts?
Most likely depends on how one defines the demand and supply for loanable funds. If you define it as private funds, then yes, but this is a different definition.
I kind of get it. The issue is that the government needs money, it goes to loanable fund market to get money, then the demand for loanable fund increase and the interest rate increases too, then people will not borrow money because the interest rate is high, so it turns out that the government hurts the economy though it came first to help it. Is that correct?
+waleed harbi That's a great summary of crowding out
So, what I stated is correct. Thank you Jcob and thank you all. You guys are amazing :)
The cautionary note is, if investment is low for reasons other price of debt (say pessimistic about the economy) then crowding out might not happen. Also government spend has other effects some of which might be beneficial (building roads etc) unemployment insurance (counter cycle effects). Like all gov actions care needs to be taken.
Why is there an increase in demand for loanable funds while there’s an increase in interest rate? I could see why cause the rise in D for loan but is that the Demand for the government or the people?
@@louiszhang7655 Total demand for loans so they are both included
You know exactly what to touch on in your videos. Thank you!!!!
hey man, your teaching style is fantastic. woulda failed college international econ if it wasnt for you.
You sir, are a god among teachers
He is the reason why I'm passing my macro class
Thank you for saving my life before the DAMN final;)
so basically.. when the government deficit spends, it increases the money supply which causes the interest rates to go up and investment falls. ( from previous video)
So, am I right to say that increase in government spending is the same as budget deficits?
no
Really amazing video💯💯💯
Someone give him an award
I understand the video. but in my textbook it says, when government ran a budget deficit, it shifts a supply curve to the left, as national saving-source of the supply of loanable funds-will decrease along with the decreasing public saving. so which I should follow or it depends? In this case, quantity of loanable funds increased, but in textbook case, it decreases.
Pls someone help me!!!!!!
Fuck the book. Sometimes its easier to look up the definition on the internet with a clearer explanation. Don't worry, it won't be wrong on the test if you fill it in differently than as stated in the book.
Same Problem here. did you ever get a clear answer to the question?
Did it ever explain why the national saving source of the supply decreases or why there would be a decrease in public saving? In the short run, I believe demand curve should shift right.
wow. simple and clear. Thanks alot.
You are awesome. Thanks a mill.
I love youuuuu!!!!! I ready to get a 5 on this AP test tom.
hi im a college sophomore and this stuff is so helpful lol
Thank you for your work , it’s very helpful for us
You're a lifesaver! I really appreciate your videos!
that's only in financial investment i.e. stocks - higher rate of return, more demand.
but, for the people who want to take out loans for investment spending (different from financial investment) a high interest rate means that they're going to have to pay back a lot more.
The interest rate is high because the government is borrowing as well, which increases demand for loans, and the interest rate with it. So a private investor (not the government) is not going to be able to get a good loan.
You're the man. Thanks for all the videos!
Muy útil!!! Falté a mi clase y esta explicación es genial!!!
Wow... Great... Subscriber now
Hey Mr. Clifford, I just wanted to point out that the graph of the loanable funds market after the government deficit-spends in 1:49 conflicts with the graph you provided in the ultimate review packet for unit 5 topic 5 (Crowding Out). Thanks!
this is the hardest part of macroeconomics
Good Job!
Great video! Super helpful thank you!!
Thanks for the clear explanation!!
uh, when the money supply increases, interest rate FALLS, causing investment to GO UP. when investment goes up, then AD will also go up, bringing up Y. But because Y goes up, the money demand will go up, bringing up in interest rate and thus, weakening the original policy.
You're amazing. Let's hope all of this works tomorrow...
My textbook showed "crowing out" as a decline in the supply rather than an increase of demand. Does it work both ways or is my textbook wrong?
"Suppose the government runs a budget deficit.
To fund the deficit, it sells bonds to households, decreasing the supply of funds available to firms.
This raises the equilibrium real interest rate and decreases the funds loaned to firms.
This is crowding out: the decline in private expenditures as a result of increases in government purchases.
"
Well both of them cause an increase in real interest rate, so it can still be used to show the crowding out effect. But I still believe only one of them is correct.
great help, thanks man easy to understand and digest!
wishing this guy was my teacher..
Can you make a video about the bond market and the effect on demand and supply caused by, inflation and increase or decrease of interest?
Thank you so much!
I thought the government's main method of raising funds was not the purchasing of debt but the selling of bonds. How would the selling of bonds affect the interest rates in contrast to simply borrowing money?
If the government wants to close a recessionary gap by increasing aggregate demand, then why would they want to decrease investment spending? Is it because crowding out causes a greater net aggregate demand from increased consumer spending over decreased investment spending?
Thank you so much i've got what i came for.
excellent presentation but i didnt really understand the crowding out bit..can u please help me out.thanks
Hey quick question! Couldn't find anything in your videos, or even my textbook.
Question for my final exam is "How to mitigate the crowding out effect". I have a solid understanding of what the CO effect is, but unsure as to how to mitigate it. Any thoughts?? Thanks man!
Such an awesome dude. Thanks prof!
So clear! Thank you sir
There are two problems with this model. Loanable funds does not exist for neither the government nor the banking system.
Governments issue bonds on the primary market to primary dealers (usually banks but there are exceptions). These auctions have special rules that guarantee bond sales. Also any transfers to and from the treasury's account at the central bank affects total reserve balances. In the case of bond sales, reserves are drained. What central banks have to is to counteract the drainage in the banking system, otherwise they won't hit their short term interest rate target (fed funds rate). Either banks have to come to the discount window or the central bank has to add reserves through its open market operations. No other borrower has such a nicely rigged borrowing scheme as the government.
As for banks, they lend to and purchase assets from the private non-banking sector by crediting accounts. Reserves are used for interbank settlement, not actual lending.
Read the 2014 BoE article on money creation.
Fantasy like all folly must come to an end. This is just pure nonsense.
Can you please make a video on cyclical and structural budget surplus or deficit?
any other way that I can support you? You helped me get an A+ in both macro and Micro economics in university. I feel like buying the package for 10$ was to cheap. You are amazing, is their any way I can donate to you?
Awesome sir...tqsm❤
you are talking about automatic stabilisers
But the quantity of money increases in the loanable funds market according to your demand curve shift. There is incentive to save, then. Would not the supply of loanable funds decrease, this raises int. rates and dec. loanable funds, thus crowding out new capital purchases?
If the gvt had a surplus, would the supply shift to the right?
Thank you!
Nice.
1:16 is not correct, I believe. The government actually creates money when it deficit spends. The borrowing is to offset excess liquidity in the banking system that resulted from its spending. Aka, the Fed drains excess bank reserves using sale of newly issued treasuries in order to maintain the target fed funds rate.
This helped me a lot!
Much better. Got it!
what happens to public saving, private saving and national savings?
You're amazing.
I have a question, in my university, our lecturer describes crowding out as a decrease in supply (because of the government that takes a part that will not be able to be supplied) is it the same thing as you?
thank you so much, you're the best
Thank you
very helpful!
How can you dislike this.. damn
Thank you!!!
thanks, really helpful !!
Thank you! I got it!
What shifts the supply of loans?
Kind of late, but personal savings and capital inflow shift the supply of loanable funds
But if government borrows and increases the interest rate, wouldnt that increase Investment? Increased demand increases the rate. Less people borrow but more people want to invest/save since there is a higher interest rate.
Can someone please help me understand why I goes down and not up?
I think you confuse government investment and firms investment. sure government investment is public spending and it will increase but the extent of increase might be compensated by the decrease in firms investment.
Now saving and investing is different. When interest rate increases, the cost of borrowing will increase, and hence firms will have less incentive to invest (firms invest by borrowing money from bank). thus this leads to lower firm investment
People would want to save more since it is more profitable to save rather than consume due to higher return in the future
Do I make sense? hahahaha hope this helps :)
@MyMrwrestling no i am not! im actually doind ib?! which is similar to a levels! 2 years but more suffering definitely!!!
Thanks sir.
I GOT IT!!!!!!!!!!
Mr. Clifford, at 2:16 you spelt sensitive as "sensative".
Just thought I'd let you know
ahhh if only u had uploaded this before thursday!?!?