If the crowding-out effect is at its maximum strength, it follows that an increase in government spending will
A)cause aggregate demand and GDP to increase.
B)cause aggregate demand and GDP to decrease.
C)not affect aggregate demand and GDP.
D)not cause the budget deficit to increase.

Question

Quizplus · Accepted Answer

When the crowding-out effect is at its maximum, increased government spending leads to a complete offset by reduced private sector spending, resulting in no net change in aggregate demand and GDP.

If the Crowding-Out Effect Is at Its Maximum Strength, It