Neoclassical macroeconomics...An increase in public spending and crowding out effect

A decrease in saving, which could result from a change in fiscal policy, such as an increase in government spending, causes the savings curve to shift to the left.

The new equilibrium is found at the point where the new savings curve intersects the investment curve.

The decrease in savings causes a decrease in investment spending and an increase in the interest rate. Fiscal policy measures that reduce the level of saving are said to "crowd out" investment.

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