Expansionary fiscal policy falls short of its goal. Some economists claim it is due to indirect crowding out. What evidence would be consistent with this claim?

Question

Quizplus · Accepted Answer

Indirect crowding out occurs when expansionary fiscal policy leads to an increase in government borrowing, which causes interest rates to rise, thereby discouraging private investment and consumption. The increase in interest rates (choice B) would be consistent with this. Choices A, C, and D are not necessarily indicative of indirect crowding out.

Expansionary Fiscal Policy Falls Short of Its Goal