In trying to cure a recession,counter-cyclical fiscal policy may crowd out both private investment and export spending.

Question

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Counter-cyclical fiscal policy involves increased government spending or tax cuts during a recession to stimulate economic growth. However, this can lead to higher interest rates and a reduction in private investment as the government competes with the private sector for available funds. Additionally, if the country's currency appreciates due to increased government spending, it can also negatively impact export spending by making the country's exports more expensive for foreign buyers. This phenomenon is known as the "crowding out" effect.

In Trying to Cure a Recession,counter-Cyclical Fiscal Policy May Crowd