When (if at all)can the crowding-out effect be prevented?
A)when the Fed decreases the money supply to accommodate the expansionary fiscal policy
B)when the real money supply is held constant
C)when the real balance effect is working
D)when the Fed allows the real money supply to increase sufficiently to keep the interest rate from rising

Question

Quizplus · Accepted Answer

The crowding-out effect can be prevented when the Fed allows the real money supply to increase sufficiently to keep the interest rate from rising. This ensures that investment demand continues to increase, and the government borrowing does not result in a decrease in private investment.

When (If at All)can the Crowding-Out Effect Be Prevented