In 2021, an article in the Economist discussed the fact that many developing countries had increased government spending financed by borrowing. The article noted: Economists have long worried that public borrowing can crowd out private investment. That is less of a concern if the government spends on investment. (India’s central government, for example, has budgeted a 26 percent increase in capital spending in the coming fiscal year.) It is also less of a worry if the economy is operating below capacity.

a. Why is crowding out less of a concern if the government is spending on investment projects?

b. How do we know if an economy is “operating below capacity”? Why is crowding out less of a concern if the economy is operating below capacity?