The change in aggregate demand that results from fiscal expansion changing the interest rate is called the
A)multiplier effect.
B)crowding-out effect.
C)accelerator effect.
D)Riccardian equivalence effect.

Question

Quizplus · Accepted Answer

The change in aggregate demand resulting from fiscal expansion changing the interest rate is known as the crowding-out effect. This occurs because increased government spending raises demand for loanable funds, causing interest rates to rise and subsequently reducing private sector spending and investment.

The Change in Aggregate Demand That Results from Fiscal Expansion