ahtausmenetelmä

Ahtausmenetelmä, often translated as "crowding out" in English, refers to an economic phenomenon where increased government spending or borrowing leads to a reduction in private sector investment. This occurs because the government's demand for loanable funds drives up interest rates. Higher interest rates make it more expensive for businesses to borrow money for capital expenditures, thus discouraging private investment.

The core mechanism involves the market for loanable funds. When the government increases its debt by issuing bonds, it competes with private entities for available savings. This increased demand for funds, assuming a relatively stable supply, pushes the equilibrium interest rate upward. Businesses that rely on borrowing to finance their operations or expansion will find these higher costs prohibitive. Consequently, planned investments are scaled back or postponed, leading to a decrease in private capital formation.

There are varying perspectives on the extent and significance of ahtausmenetelmä. Some economists argue that its impact is substantial, especially in economies with limited savings or during periods of high government deficits. Others contend that the effect can be mitigated by factors such as increased national savings, international capital flows, or the presence of unemployed resources. The debate often centers on the responsiveness of investment to interest rate changes and the overall health of the economy. In some circumstances, government spending might stimulate economic activity, potentially offsetting some of the crowding-out effects.