In a binding situation, there is no crowding out of planned investment when government spending increases or when taxes decrease.

Question

Quizplus · Accepted Answer

In a binding situation, where interest rates are at the zero lower bound and monetary policy is ineffective, there is no crowding out of planned investment when government spending increases or taxes decrease because there is excess saving and firms are not utilizing all available funds for investment.

In a Binding Situation, There Is No Crowding Out of Planned