Which argument was a justification for breaking with the normal presumption against using discretionary fiscal policy during the Great Recession?
A) Monetary policy would not be effective because interest rates were so high.
B) Crowding-out was not likely to be a problem in a very depressed economy with interest rates near zero.
C) The economy was so depressed that a political business cycle was not likely to be a problem.
D) Ricardian equivalence was likely if monetary policy was used alone.

Question

Quizplus · Accepted Answer

Crowding-out occurs when government spending exhausts funds that would have otherwise been used by private investors, leading to a decrease in private investment. However, in a depressed economy with interest rates near zero, private investment is unlikely, so crowding-out is not a significant concern. This justifies breaking with the normal presumption against discretionary fiscal policy during the Great Recession.

Which Argument Was a Justification for Breaking with the Normal