i was googling the whole thing about crowding out effect and guess what, it was right of me to be confused about it.
as it turns out, different people have their own interpretation of the term "crowding out" and apparently, nanyang teachers have their own interpretation too.
in general, crowding out effect is: the reduction in PRIVATE consumption and PRIVATE investment due to increase in GOVERNMENT spending. If instead the increase in government spending is not accompanied by a tax increase, government borrowing to finance the increased government spending would increase interest rate. (He said: The control of the money supply is managed by either buying or selling securities such as second hand government debt (e.g. bonds), or by lending to or borrowing money from banks...money was being borrowed in low interest countries such as Japan and being utilised in high interest New Zealand. In doing so money was flooding into New Zealand, resulting in even higher interest rates, and creating demand for the New Zealand currency, and thereby pushing up the value of the New Zealand dollar. <- epic example. but i don't understand why the interest rates was being pushed up when the money supply was increased.)
however, the causes of this effect has different interpretations from all over the world. or so my friend, wikipedia, told me.
some said it's due to "the government spending using up financial and other resources that would otherwise be used by private enterprise" and some said it "refer to government providing a service or good that would otherwise be a business opportunity for private industry".
