The crowding-out effect tends to be stronger when the economy
A)has a lot of excess productive capacity.
B)is at, or close to, full employment.
C)has a very small net exports or foreign sector.
D)is a very open economy with a large foreign sector.Topic: Problems, Criticisms, and Complications of Implementing Fiscal Policy

Question

Quizplus · Accepted Answer

When the economy is at or close to full employment, increased government spending can lead to higher interest rates, which can crowd out private investment.

The Crowding-Out Effect Tends to Be Stronger When the Economy