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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Why is crowding out an important issue in the debate over the use of fiscal policy?

To determine

Identify that how the crowding-out effect influences the effectiveness of fiscal policy.

Explanation

The fiscal policy can influence the aggregate demand (AD) and thereby the real GDP in an economy, although the complete effectiveness of fiscal policy on aggregate demand is possible only in the absence of crowding out. Otherwise, in the presence of crowding out, fiscal policy has no net impact on the aggregate demand...

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