If an increase in the federal deficit stimulates an economy, _____
A) an expansionary gap exists in the economy.
B) the crowding in of private investment takes place.
C) the crowding out of private investment offsets the crowding in of private investment.
D) the crowding out and crowding in of private investment cancels each other out.
E) interest rates increase significantly.

Question

Quizplus · Accepted Answer

An increase in the federal deficit can lead to an increase in government spending, which can create a multiplier effect and stimulate economic activity. As a result, private investment may also increase, known as crowding in. This can lead to additional economic growth and job creation.

If an Increase in the Federal Deficit Stimulates an Economy