An increase in government expenditure will NOT crowd out private spending when:
A) the economy is at full employment.
B) the level of unemployment is high.
C) interest rates are very low.
D) inﬂation is very high.

Question

Quizplus · Accepted Answer

When the level of unemployment is high, there is spare capacity in the economy. This means that an increase in government expenditure will not lead to a decrease in private spending, as there are unemployed resources that can be used to meet the increased demand.

An Increase in Government Expenditure Will NOT Crowd Out Private