Government spending will NOT crowd out private spending if:
A) all of the resources in the economy are employed.
B) aggregate income is at its potential level.
C) there is an inflationary gap.
D) there is a recessionary gap.

Question

Quizplus · Accepted Answer

Government spending will not crowd out private spending if there is a recessionary gap because, in such a scenario, there are idle resources and unemployed labor. Increased government spending can stimulate economic activity without competing with the private sector for resources, thus not crowding out private investment.

Government Spending Will NOT Crowd Out Private Spending If