If the crowding-out effect is complete and the marginal propensity to save is 0.25, then an increase in government spending of $100 billion will generate how much more real GDP?
A)$0
B)$25 billion
C)$100 billion
D)$400 billion

Question

Quizplus · Accepted Answer

If the crowding-out effect is complete, it means that any increase in government spending will be fully offset by a decrease in private investment or consumption. Therefore, the increase in government spending will not generate any additional real GDP. The marginal propensity to save is irrelevant in this case.

If the Crowding-Out Effect Is Complete and the Marginal Propensity