In mid-2022, the government of Zephyrus faced an economic stagnation. Private sector confidence was exceptionally weak, leaving a large volume of domestic savings pools sitting idle in commercial banks rather than being channeled into private capital investment. Despite nominal interest rates being near zero, commercial loan demand remained flat. To stimulate aggregate demand, the Zephyrian government initiated a massive infrastructure spend, financed entirely by issuing sovereign bonds.
Critics warned of the dangers of crowding out. However, proponents argued that in the current climate, crowd-out was highly unlikely. Firstly, because the economy was operating far below full capacity with high unemployment, government spending would utilize idle resources rather than competing with the private sector. Secondly, the universe of surplus private savings meant that increased public borrowing could be fully absorbed without driving up interest rates. Lastly, the central bank's ongoing asset-purchase program stood ready to buy up any unsold government debt, keeping bond yields low.
Using information from the stimulus material, identify two reasons why crowding out may not occur.
