When the economy is on the flat part of the AS curve, there is very little crowding out of planned investment.

Question

Quizplus · Accepted Answer

When the economy is on the flat part of the AS curve (i.e., the horizontal range), there is excess capacity and firms can increase output without much increase in cost. This means that there is less upward pressure on interest rates, and therefore, less crowding out of planned investment.

When the Economy Is on the Flat Part of the AS Curve