The crowding-out effect and the foreign-trade effect enhance the ability of fiscal policy to combat recession.

Question

Quizplus · Accepted Answer

The crowding-out effect actually weakens the ability of fiscal policy to combat recession by increasing interest rates and reducing investment, while the foreign-trade effect can lead to a decrease in net exports due to higher interest rates, also potentially weakening fiscal policy's effectiveness.

The Crowding-Out Effect and the Foreign-Trade Effect Enhance the Ability