Did the rescue plan crowd out private investment?
In mid-2007, on the eve of the onset of the global financial crisis, U.S. investment expenditure was running at $2.2 trillion. The government had a budget deficit of $0.2 trillion, so the quantity of loanable funds demanded and supplied was $2.4 trillion. The real interest rate at the time was 3% per year.
By mid-2009, U.S. investment expenditure had fallen to $1.5 trillion and the real interest rate had risen to 4.5% per year.
What caused the collapse of investment and the rise in the real interest rate?