Author Question: What is the crowding-out effect and how does it work? What will be an ideal ... (Read 15 times)

pragya sharda · **on:** Jun 29, 2018

What is the crowding-out effect and how does it work?

What will be an ideal response?

Question 2

What is the Herfindahl-Hirschman index?

What will be an ideal response?

tandmlomax84 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The crowding-out effect refers to the decrease in investment that occurs when the government budget deficit increases. An increase in the government budget deficit increases the demand for loanable funds. As a result the real interest rate rises. The rise in the real interest rate decreasescrowds outinvestment.

Answer to Question 2

The Herfindahl-Hirschman index is a measure of industry concentration that uses data on individual firms' market shares. Specifically, the index is the sum of the squares of the market shares of each firm in the industry. The index is used to determine whether or not a proposed merger will be challenged by the government.