The possibility of indirect crowding out suggests that,if the government wants to engage in expansionary policy,it must

Question

Quizplus · Accepted Answer

Indirect crowding out implies that government spending leads to higher interest rates, which in turn reduces investment. To counteract this and still achieve the desired expansionary effect, the government would need to increase spending more than what the simple Keynesian model suggests, to offset the reduction in private investment.

The Possibility of Indirect Crowding Out Suggests That,if the Government