when a government runs a budget deficit (it spends more money than it collects), causing the real interest rate to increase, and private investment to decrease because it becomes “crowded out”. When a government runs a deficit, it must borrow money to pay for its debt (this is commonly done through the sale of bonds). People respond by buying these bonds, consequently absorbing the debt, with their personal savings. This causes the supply of loanable funds (savings curve) to decrease and causes a shift left in the curve. The leftward shift creates a new equilibrium point at a higher interest rate. At this higher interest rate, businesses refrain from investing due to the new higher price of the loan. This ultimately leads to a slow down in the economy, as growth occurs at a slower pace or does not occur at all.