Crowding Out Expansionary fiscal policy increases aggregate demand and moves the budget toward deficit. If deficit spending is financed through borrowing, the government will demand loanable funds. The government's demand for loanable funds (Dlf) added to the demand for loanable funds by private borrowers. Thus expansionary fiscal policy increases Dlf and may cause interest rates to rise. Because the government is borrowing money to finance its expansionary fiscal policy, consumers and businesses will be "crowded out" of financial markets. If consumers and businesses are not able to borrow to finance spending, it will lead to a decrease in aggregate demand (AD). Crowding out occurs when the government borro