If an economy is in a recession and the government opts for an expansionary fiscal policy to shift the AD curve closer to potential output, an economist with a typical functional finance view, who acknowledges partial crowding out, would conclude that the AD curve:

Question

Quizplus · Accepted Answer

Expansionary fiscal policy, such as higher government spending, is designed to increase aggregate demand (AD), shifting the AD curve to the right. Even with partial crowding out, where some private sector spending might decrease due to the government's increased demand for funds, the net effect is still an increase in overall demand.

If an Economy Is in a Recession and the Government