Expansionary fiscal policy
A)can be effective in the short run.
B)causes complete crowding out in the short run.
C)is never effective because of crowding out.
D)can be effective in the long run.

Question

Quizplus · Accepted Answer

Expansionary fiscal policy can be effective in the short run because it can increase aggregate demand and stimulate economic activity. However, in the long run, there may be crowding out effects that reduce the effectiveness of the policy. Crowding out occurs when government spending increases lead to increased interest rates, which can reduce private sector spending and investment.

Expansionary Fiscal Policy