In the mainstream view, the crowding-out effect from the use of fiscal policy is:
A) Small, especially during a recession
B) Large, especially during a recession
C) Large because the velocity of money is high
D) Small because the velocity of money is low

Question

Quizplus · Accepted Answer

According to the mainstream view, the crowding-out effect from the use of fiscal policy is small, especially during a recession. This is because during a recession, there is idle capacity and resources, and increased government spending can stimulate demand and not lead to an increase in interest rates that would crowd out private investment. Additionally, during a recession, the velocity of money tends to be low, which means that increased government spending does not circulate quickly through the economy and cause inflationary pressures.

In the Mainstream View, the Crowding-Out Effect from the Use