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Government borrowing reduces the amount of capital available for investment. When government borrows internally(within the country), it reduces the amount of capital available for other businesses to invest. By reducing the available capital, government causes loan interest rates to go up resulting in further crowding out of investment by making accessibility to capital difficult.
Budget deficits occurs when the money that a government has raised ,mostly from taxes, is less than the money it has budgeted for in order to carry out development or run a country.Therefore, the governments borrows either internally or externally in order to cover up the budget deficit.
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