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

Question

Quizplus · Accepted Answer

An economist with a functional finance view would argue that expansionary fiscal policy, such as increased government spending, shifts aggregate demand (AD) to the right, even if there is partial crowding out, because the increase in government spending is likely to have a net positive effect on AD.

If an Economy Is in a Recession and the Government