Final answer:
For a government to run deficits without crowding out private investment, they must keep interest rates low. This allows the government to borrow funds for deficit financing without raising borrowing costs for the private sector and therefore not deterring private investment.
Step-by-step explanation:
To run deficits without any crowding out, the government would need to ensure that interest rates remain low. Crowding out occurs when government borrowing leads to higher interest rates, discouraging private investment. When the government runs a deficit—spending more than it earns—it borrows to finance this gap. If the government borrows without leading to increased interest rates, then the private sector's access to capital remains unimpeded, potentially avoiding crowding out.
Fiscal responsibility is key to managing the impacts of spending. As the population ages, there's likely to be increased demand for government services, potentially leading to higher deficits. To prevent this from inherently reducing private investment, maintaining low interest rates is essential.
This approach allows government debts to be financed affordably without negatively affecting the capacity of private firms to invest and without resorting to inflationary measures or financial crises.