This paper builds a Dynamic General Equilibrium Model consisting of three departments and studies whether governmental debt expansion squeezes out private investment, whose innovation lies in financial policy tool which is subdivided into such six items as governmental consumption expenditure, government productiontype investment expenditure, governmental transfer payment, and the threetype distorted proportion taxes from consumption, labor and capital tax collection, and the research finds that there should not have a unilateral viewpoint on whether government debt expansion squeezes out private investment but the sources for the debt expansion should be found out. Because Chins is currently stays in a key time for overall deepening reform, correctly understanding of the impact of government debt expansion on private investment will play an active role in the process of financial system reform. 