If the economy is on the flat portion of the AS curve,
A) there is little crowding out of planned investment.
B) there is almost complete crowding out of planned investment.
C) consumption, but not government spending, crowds out planned investment.
D) government spending, but not consumption, crowds out planned investment.

Question

Quizplus · Accepted Answer

When the economy is on the flat portion of the AS (aggregate supply) curve, there is little pressure on prices to increase due to excess capacity in the economy. This means that there is little crowding out of planned investment because there is no upward pressure on interest rates. If there is little crowding out, it also means that there is no significant competition between private investment and government spending for available funds. Therefore, option A is the best choice.

If the Economy Is on the Flat Portion of the AS Curve