The strict crowding-out argument relies on the assumption that
A)the government must raise taxes to pay for spending, and the tax increase crowds out the stimulative effect of increased spending.
B)the total flow of saving is a fixed amount.
C)investment is invariant to interest rates, but very dependent on aggregate spending.
D)consumption will rise to absorb most of an increase in income, and investment will accordingly fall.

Question

Quizplus · Accepted Answer

The strict crowding-out argument assumes that the total flow of saving is a fixed amount, meaning that any increase in government spending will lead to an equal decrease in private investment because there is a limited amount of available saving. This assumption has been challenged by some economists who argue that saving and investment are not fixed and can vary based on interest rates and other factors.

The Strict Crowding-Out Argument Relies on the Assumption That