Smith says that if government purchases rise by $100 billion,the AD curve will shift to the right.Jones says that if government purchases rise by $100 billion,the AD curve will not shift to the right.It follows that
A) Smith believes there will be zero or complete crowding out and Jones believes there will be complete crowding out.
B) Smith believes there will be incomplete or zero crowding out and Jones believes there will be complete crowding out.
C) Smith believes there will be complete crowding out and Jones believes there will be zero crowding out.
D) Both Smith and Jones believe there will be incomplete crowding out,although Jones believes there will be more incomplete crowding out than Smith believes there will be.
E) none of the above

Question

Quizplus · Accepted Answer

Smith's belief that the AD curve will shift to the right with an increase in government purchases suggests he believes the increase will have a positive impact on aggregate demand, indicating he thinks there will be incomplete or zero crowding out. Jones, on the other hand, believes the AD curve will not shift, suggesting he thinks any increase in government spending will be completely offset by decreases in other components of aggregate demand, indicating complete crowding out.

Smith Says That If Government Purchases Rise by $100 Billion,the