Assume that if there was no crowding-out, an increase in government spending would increase GDP by $100 billion. If there had been partial crowding-out, however, then GDP would have:

Question

Quizplus · Accepted Answer

Partial crowding-out occurs when an increase in government spending leads to a decrease in private investment due to increased interest rates. This reduces the overall effect of the government spending on GDP. Therefore, if there had been partial crowding-out, GDP would have increased by less than $100 billion.

Assume That If There Was No Crowding-Out, an Increase in Government