Suppose the government increases government purchases and there is some crowding out. JAs a result

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Quizplus · Accepted Answer

The crowding out effect occurs when increased government purchases lead to higher interest rates, which in turn reduce private investment and consumption spending. This reduces the overall effectiveness of the government's expansionary fiscal policy. Therefore, while the rightward shift of the aggregate demand curve due to increased government purchases still occurs, it is partially offset by the crowding out effect.

Suppose the Government Increases Government Purchases and There Is Some