Final answer:
Investment in the U.S. economy amounts to about 14% to 18% of GDP, but crowding out from a budget deficit of 3% to 4% of GDP could potentially reduce available capital for new private investments. During the Great Recession, the Federal Reserve's actions helped mitigate this effect.
Step-by-step explanation:
For this economy, investment amounts to approximately 14% to 18% of GDP, with new physical capital investments representing about 7% to 9% of GDP. The concept of crowding out suggests that a higher budget deficit, which was around 3% to 4% of GDP in 2005, can reduce the amount of financial capital available for private investment. This decrease in available capital could lead to a reduction in new investment as government borrowing consumes a portion of the financial resources that would otherwise have been put towards private investment. However, this effect isn't always direct and can be influenced by other factors including private savings, foreign investment, and monetary policy as demonstrated during the Great Recession, when the Federal Reserve's actions altered the typical impact of government deficits on private investment.