Which one of the following statements is NOT true?
A) Expansionary fiscal policy is employed to offset recessionary gaps.
B) Expansionary fiscal policy has an effect on interest rates.
C) Crowding out dilutes the effect of expansionary fiscal policy.
D) When crowding out occurs, fiscal policy has a larger effect on aggregate demand.

Question

Quizplus · Accepted Answer

When crowding out occurs, it reduces the effectiveness of expansionary fiscal policy and makes it less effective in stimulating aggregate demand. Therefore, option D is not true as it suggests that fiscal policy has a larger effect on aggregate demand when crowding out occurs.

Which One of the Following Statements Is NOT True