Short-run resource crowding out is likely to be less of a problem when the economy is:
A)at potential GDP.
B)above potential GDP.
C)almost at potential GDP.
D)in a recession.

Question

Quizplus · Accepted Answer

In a recession, there is typically underutilized capacity in the economy, meaning that there are idle resources, such as unemployed labor and unused capital. When the government increases spending during such times, it can utilize these idle resources without necessarily crowding out private investment, because the economy is not operating at its full potential. This is less likely to happen when the economy is at or above potential GDP, where most resources are already fully employed.

Short-Run Resource Crowding Out Is Likely to Be Less of a Problem