Government borrowing will not crowd out private investment spending if unemployment is _____ and the fiscal expansion causes a(n) _____ in incomes and a(n) _____ in saving at each interest rate.

Question

Quizplus · Accepted Answer

When unemployment is high, there is underutilized capacity in the economy. A fiscal expansion (increased government spending or decreased taxes) can increase incomes without leading to higher interest rates that would crowd out private investment. Instead, it can lead to an increase in saving at each interest rate, as people have higher incomes and can save more. This scenario does not crowd out private investment because the economy is not operating at full capacity.

Government Borrowing Will Not Crowd Out Private Investment Spending If