Crowding out will be more pronounced the closer to vertical is the
A)IS curve.
B)LM curve.
C)consumption function.
D)aggregate demand function.

Question

Quizplus · Accepted Answer

Crowding out occurs when an increase in government spending results in a decrease in private investment, which shifts the LM curve upward and to the left. The closer to vertical the LM curve is, the greater the crowding out effect, as there is less room for interest rates to adjust to changes in investment and consumption. The IS curve is not directly related to crowding out, and neither is the consumption function or aggregate demand function.

Crowding Out Will Be More Pronounced the Closer to Vertical