AP MacroeconomicsFiscal Policy
Crowding In
Crowding in is when government spending raises private investment—the opposite of crowding out—typically during a recession with idle resources.
In a deep recession, expansionary fiscal policy can boost demand, output, and incomes without driving up interest rates much, because savings are ample and resources are idle. The resulting rise in sales and optimism encourages firms to invest, so public spending 'crowds in' rather than crowds out private investment. The accelerator effect (higher output raising desired capital) reinforces this. Whether crowding in or crowding out dominates depends on how close the economy is to full employment.