The crowding-out effect of an expansionary fiscal policy is likely to be fully or partially offset during a recession.

Question

Quizplus · Accepted Answer

During a recession, there is often excess capacity in the economy, and therefore fiscal policy can stimulate output and employment without causing inflation or crowding out private investment. Additionally, during a recession, interest rates are likely to be low, which reduces the likelihood of crowding out. Therefore, the crowding-out effect of expansionary fiscal policy is likely to be fully or partially offset during a recession.

The Crowding-Out Effect of an Expansionary Fiscal Policy Is Likely