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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

How does crowding out create questions about the effectiveness of expansionary demand-side fiscal policy? Give an example.

To determine

Explain how the crowding out effect addresses the effectiveness of expansionary demand-side fiscal policy.

Explanation

The demand-side fiscal policy explains the changes in the aggregate demand in an economy due to the changes in the fiscal policy. Generally, an expansionary fiscal policy is used to increase the aggregate demand in an economy. If the economy is in recessionary gap, an increasing aggregate demand will fill or eliminate that gap, although this effectiveness of expansionary fiscal policy on aggregate demand is possible only in the absence of crowding out...

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