"Expansionary fiscal policy is always 100 percent effective when the short-run aggregate supply curve is horizontal." Is this statement TRUE?

Question

Quizplus · Accepted Answer

When the short-run aggregate supply curve is horizontal, expansionary fiscal policy (such as increased government spending or tax cuts) is generally effective in increasing output without affecting the price level. However, the statement is not 100 percent accurate because of the possibility of crowding out. Crowding out occurs when increased government spending leads to higher interest rates, which in turn can reduce private investment. This can diminish the effectiveness of fiscal policy in stimulating economic activity.

"Expansionary Fiscal Policy Is Always 100 Percent Effective When the Short-Run