Expansionary fiscal policy is ineffective if
A) there are idle resources in the economy.
B) the MPC is less than 0.60.
C) the government has a budget surplus.
D) there is complete crowding out.
E) a and d

Question

Quizplus · Accepted Answer

Complete crowding out occurs when the increase in government spending is fully offset by a decrease in private investment due to higher interest rates. In this scenario, expansionary fiscal policy is ineffective as the intended increase in aggregate demand is completely negated by the decrease in private investment.

Expansionary Fiscal Policy Is Ineffective If